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Author Topic: Inflation and Deflation of Price and Money Supply  (Read 506986 times)
MoorChael
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August 20, 2015, 06:54:59 PM

While I despise them, I see the genius of the Federal Reserve system.

There's genius in stealing?  Roll Eyes

Yes. I fully agree with him!
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lady Royal
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August 23, 2015, 03:27:10 PM




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.





can u please explain me how the prices of bitcoin rise and fall..??
and how trading effect it...
as i have some exp in trading according to which there are trends of buyers /sellers .. the prices of currency only fall/rise  in some exceptional case...

he already explained it, he said that bitcoin prices goes up or down by means of how many coins that buyers bought. and also depends on market price.

okay .. i understand .. may be that time my mind dont understand it.. u clear my ambiguity by telling in easy way ...
thanx  Smiley
its ok. just understand what they say and what they mean to say, and don't judge quickly and don't take too much seriously what they say wrong things.

yeah sure ... unfortunately or fortunately i'm human being and by default its in our nature we judge quickly and always in hurry ...
ok i will double check thing before i believe on something..

skeem
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September 04, 2015, 02:45:02 AM

so in the real world the bitcoin's anti-inflation is a lie.

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painlord2k
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September 08, 2015, 08:27:10 PM

so in the real world the bitcoin's anti-inflation is a lie.

I don't know what "anti-inflation" is.

What I know is Bitcoin inflation is already known, it is a decreasing function going to zero in 120 years.
In less than a year it will be less than 5% per year.
In the next 5 years it will be less than 2.5%.
In the next 9 years (maybe Cool it will be less than 1.25%
No way to change the schedule without support from the overwhelming majority of the network (good luck at getting that - anyone seriously proposing that will be gifted with a lot of rope and a nice schematics about how use it)

What I know is the USD inflation can go from sub zero (today) to 40% (November 2013) or 35% (2011) or 50% (2009).
it is just a political decision of a cadre of people in power asking themselves "To Fuck or not To Fuck the other 99.9%? This is not our problem"
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September 09, 2015, 07:59:24 PM

There will be deflation when the national debt keeps increasing. We need to shrink the money supply by paying off the debt to have deflation. If the money supply expands, we get inflation, if it contracts, we get deflation.  Isn't the money supply expanding every time the debt increases? Besides the money supply contracting, is there anything else that will cause deflation and vice versa. Smiley

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Preclus
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September 25, 2015, 03:11:35 AM

What I know is Bitcoin inflation is already known, it is a decreasing function going to zero in 120 years.
In less than a year it will be less than 5% per year...

You are making a number of assumptions with that.

The first assumption is that the miners and developers will be fine with a system that does not generate the number of additional bitcoins that are generated today to pay miners. Do you think miners will be fine only generating money from transaction fees? And if so, do you feel they will accept a low transaction fee? If not and the transaction fee goes high, how do you feel that will affect desire and need for bitcoins?

The miners are apparently in control of the bitcoin protocol as shown with the current BIP situation. The small handful of miners who constitute over 50% of the network have decided on which modifications to make to bitcoin as far as the blocksize goes and are running with it.

How many bitcoins there will be in the future is really up to them. They have shown that they control the network. The developers are a distant second to them. However both have more control than the bitcoin userbase based has.

Secondly, you are not assuming any lending. All major currencies used in the world today have a fractional reserve system. There is no way to prevent a money multiplier or fractional reserve system arising when it comes to any asset or currency.

You can take someone's bitcoin on deposit, lend it out to someone else, they can buy something from yet another person and if you can get that person to deposit their bitcoin with you, you can lend it out to someone else. Re-lending the same coins increases the money supply.

If bitcoin did become popular, you would have bitcoin lending. And all currencies in the past (tally sticks, gold, etc. tally sticks were mostly a system of credit in any case) and current currencies have/had borrowing and a money multiplier. It has not happened with bitcoin (except in a tiny part) because people are afraid to lend. Due to the pseudo-anonymous nature of transactions, people don't trust to lend their bitcoins out. If bitcoin really became popular, you would have lending and bitcoin would be affected by the same inflation rates caused by ease of lending that other currencies have.

It is not the quantity of dollars in the world that causes inflation. It is the ease to which people can get dollars.

Simple example: If anyone can go to a bank and borrow as much as they want to buy a house, what happens to the price of houses?
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September 27, 2015, 03:40:52 PM

Inflation is a tax from the government.  Embarrassed

Because government is highly in debt, the only reason to survive is to inflate. And we will see a lot of inflation in 2-3 years.
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September 28, 2015, 07:24:11 PM

No monetary system is perfect. Bitcoin too has its flaws. I have two primary issues with BTC.

1) Its value is derived purely by supply and demand in the market place. It is like a piece of art. It is only worth what someone is willing to pay for it.

2) What's to stop a wealthy consortium or a country like China from taking control of it. And if this were to happen, since it is not backed by anything physical, would its value fall to zero?
painlord2k
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September 30, 2015, 06:12:16 PM

No monetary system is perfect. Bitcoin too has its flaws. I have two primary issues with BTC.

1) Its value is derived purely by supply and demand in the market place. It is like a piece of art. It is only worth what someone is willing to pay for it.

2) What's to stop a wealthy consortium or a country like China from taking control of it. And if this were to happen, since it is not backed by anything physical, would its value fall to zero?

1) Like gold or the USD. People accept USD just for what they think is worth. 1 pack of milk cost now what? 2$? (I'm in Italy). Tomorrow nothing prevent the price from being $20 for the same pack of milk.

2) They could take control of it or at least try. It would cost a lot and would be a total loss, because  the value would plummet.
The problem, for them, would be they were forced to play the game by the rules and not by force. And anyone else would see it and smell the blood int he water.
As powerful as they are, they could not prevail against the market forces rallying against them.
Others could finance more computing power to take the control back from them.

painlord2k
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September 30, 2015, 06:14:27 PM

What I know is Bitcoin inflation is already known, it is a decreasing function going to zero in 120 years.
In less than a year it will be less than 5% per year...

You are making a number of assumptions with that.

The first assumption is that the miners and developers will be fine with a system that does not generate the number of additional bitcoins that are generated today to pay miners. Do you think miners will be fine only generating money from transaction fees? And if so, do you feel they will accept a low transaction fee? If not and the transaction fee goes high, how do you feel that will affect desire and need for bitcoins?

The miners are apparently in control of the bitcoin protocol as shown with the current BIP situation. The small handful of miners who constitute over 50% of the network have decided on which modifications to make to bitcoin as far as the blocksize goes and are running with it.

How many bitcoins there will be in the future is really up to them. They have shown that they control the network. The developers are a distant second to them. However both have more control than the bitcoin userbase based has.

Secondly, you are not assuming any lending. All major currencies used in the world today have a fractional reserve system. There is no way to prevent a money multiplier or fractional reserve system arising when it comes to any asset or currency.

You can take someone's bitcoin on deposit, lend it out to someone else, they can buy something from yet another person and if you can get that person to deposit their bitcoin with you, you can lend it out to someone else. Re-lending the same coins increases the money supply.

If bitcoin did become popular, you would have bitcoin lending. And all currencies in the past (tally sticks, gold, etc. tally sticks were mostly a system of credit in any case) and current currencies have/had borrowing and a money multiplier. It has not happened with bitcoin (except in a tiny part) because people are afraid to lend. Due to the pseudo-anonymous nature of transactions, people don't trust to lend their bitcoins out. If bitcoin really became popular, you would have lending and bitcoin would be affected by the same inflation rates caused by ease of lending that other currencies have.

It is not the quantity of dollars in the world that causes inflation. It is the ease to which people can get dollars.

Simple example: If anyone can go to a bank and borrow as much as they want to buy a house, what happens to the price of houses?



Some miners, even the majority of the hash rate could change the rules THEY follow.
But they can not change the rules I and others follow.
Their out of protocol rules bitcons would not be considered valid and rejected. Like 3 and half dollar bill round and pink.
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October 02, 2015, 11:30:50 AM

Inflation is positive price change, deflation is negative price change. I think nothing differentiates inflation and deflation of price and money supply. A recession is usually defined as 2 quarters of negative GDP growth. However for the 2008 recession, the beginning was defined as the peak of Employment and steady job loss after and the multiple negative GDP growth followed.
painlord2k
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October 02, 2015, 05:42:12 PM

Inflation is positive price change, deflation is negative price change. I think nothing differentiates inflation and deflation of price and money supply. A recession is usually defined as 2 quarters of negative GDP growth. However for the 2008 recession, the beginning was defined as the peak of Employment and steady job loss after and the multiple negative GDP growth followed.

You are wrong, because in real life money supply inflation do not turn in a proportional prices increases across the board.

Some prices increase, some decrease, other stay the same.
The increases and decreases happen with a variable delay.
Sometimes the increase is proportional to the increase in money supply, but often it is lower or higher.
Sometimes some price increase then fall down.

It is not so easy.

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October 03, 2015, 04:01:40 AM

Since the value of BTC increases with the increase in demand, what if there is an increase in demand with a proportionate increase in supply? This question is in reference with the estimation of value , when demand intersects supply.

If demand and supply increases an equal amount, the price will not change.

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bambou
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October 06, 2015, 06:03:40 PM

While I despise them, I see the genius of the Federal Reserve system.

There's genius in stealing?  Roll Eyes

Nope, just abhorrent stupidity amongst the sheeple.

Non inultus premor
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October 09, 2015, 10:53:14 AM

you guys reckon a reserve bank of some sort would help, not owned by a government but something like that.
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October 09, 2015, 07:40:27 PM

No monetary system is perfect. Bitcoin too has its flaws. I have two primary issues with BTC.

1) Its value is derived purely by supply and demand in the market place. It is like a piece of art. It is only worth what someone is willing to pay for it.

That is the case with any monetary asset.  That is the fundament of any speculative asset (of which a monetary asset is a specific case).

Quote
2) What's to stop a wealthy consortium or a country like China from taking control of it. And if this were to happen, since it is not backed by anything physical, would its value fall to zero?

Probably.  As fiat money does.  (the Reichsmark being the schoolbook example, but there are many others).

In fact, "being backed by something physical" only makes the asset a proxy of the physical thing.  But physical things can also be speculative.  The only thing that limits the down side value of a physical thing, is its supposed inevitable consumption value.  But in as much as a physical asset has only his consumption value, it doesn't have any monetary value or use.  The extra demand for monetary use is what increases a physical asset's price, and that increase is exactly its monetary value.   When a physical asset falls back to its consumption value, it has lost all use as a monetary asset.

So the only difference between a "non-backed" and a "backed" asset is that BESIDES its monetary use, a backed asset is a proxy of a consumption value.

On the other hand, a backed asset has the problem of rising the price of an asset that is also a consumption good.  That consumption then becomes difficult or impossible, because of the price distorsion.

All this indicates that it is much better to have non-backed monetary assets over backed monetary assets.  Non-backed monetary assets cannot perturbe the consumption of something, and backed assets can just as well loose all their monetary value.

In fact you can do that yourself.

Consider "food" as a backup of a monetary asset.  If that were true, that would be a disaster, because the price of food would increase much because the extra demand for food as monetary asset.  Nobody would be able to eat a decent meal at a decent price !

Let us consider that the price of bread is multiplied by 50 because of its demand as a monetary asset.  So instead of, say, a bread having teh value of $1 (I'm using the $ as a unit of value measurement here only), it would cost $ 50.  Nobody would eat bread any more.  But you can use bread as "money".  As it is backed by its "food value", you know that in the worst case, your bread can only drop down to $1,-, because people will still want to consume it at that price.

Now, consider that you have an altcoin, "breadcoin".  It is worth $49 because of offer and demand.  If you want to "back it up" with something physical, it is sufficient that for each breadcoin you own, you also buy a genuine bread.  As such, the day that the breadcoin hyperinflates, and looses all value, you still have your bread left.  As when you were using physical bread.
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October 16, 2015, 08:48:46 PM

you guys reckon a reserve bank of some sort would help, not owned by a government but something like that.

This is definitely not an option, in effect this would be taking a distributed ledger and injecting a lethal dose of centralisation
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October 17, 2015, 02:49:18 AM

While I despise them, I see the genius of the Federal Reserve system.

There's genius in stealing?  Roll Eyes

Yes. I fully agree with him!


Come on, Genius ?    Its not that clever and they really didnt invent the system in effect.   Its just an elaborate raffle, if I hold up a lovely brand new car 5 litre Turbo, it does 200mph.  It looks amazing, two tone paint work, all chrome leather seats whatever but to make its cost is 50,000 dollars.   Alot of people want it, then I go sell raffle tickets worth 1 million dollars Iam a genius but more accurately a salesman exploiting, obscuring a misunderstanding in the terms by those hoping to win.   Nothing special, this is done all over the net, TV everywhere people use the viewers poor maths to take advantage.   1 person wins, a few people gain from the system, the salesman gets his cut but in the main its raffle owners who get to spend a free 900k

Thats all the FED has done, they over leveraged and the raffle is yet to be settled but they already have charged ticket prices and the money is spent.   The amount of lustre attributed to holding dollars is unparalleled, its not a unique product and value is momentary.    To unwind now would take the same taxes but no services by government, an army only locally militia based and so on.  Feasibly it would take decades to pay back even with no spending I believe, its not possible and growth to meet the cost is not likely without some dramatic move like USA gov copyrights power stations using nuclear fusion for a great free energy export

you guys reckon a reserve bank of some sort would help, not owned by a government but something like that.
Not a central bank but competing banks with varying schemes of investment and capital reserve would improve reliability.  They would be more justified then merely operating the worlds most powerful army as a qualifier.
As we have now, all banks report to one and its a top down system less independent, less able to adapt to change and more subject to fracture under pressure



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November 03, 2015, 02:19:10 PM

The prices of btc keep on increasing and decreasing regularly accordingly as we can see. But, the supply of money is to be maintained as same. The changes in prices whether increase or decrease can give a big profit or loss to the person. Here's why
(1) You buy one btc today for 24000inr and then btc price decreases, you are certainly in a loss. You can be in profit too on the reverse case.
The differences in prices of different currencies isn't uniform too,e.g. 1btc is 328us$ and also 24,000inr. But ,328us$ isn't equal to 24,000inr.
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November 07, 2015, 09:00:43 PM

Does this price inflation and deflation depend fully on Bitcoin days destroyed? I guess it also plays an important role because one may send his own coins between different addresses trying to show the network that several transactions are being made?
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