Inflation and Deflation of Price and Money Supply

[sicparvismagna]

Inflation occurs when there is a sustained increase in the general price level. Traditionally high inflation rates are considered to be damaging to an economy. High inflation creates uncertainty and can wipe away the value of savings.
Advantages of Inflation

Deflation is potentially very damaging to the economy and can lead to lower consumer spending and lower growth. For example, when prices are falling, consumers are encouraged to delay purchasing.
A moderate inflation rate reduces the real value of debt. If there is deflation, the real value of debt increases leading to a squeeze on disposable incomes.
Moderate rates of inflation allows prices to adjust.
Moderate rates of inflation is sign of a healthy economy. With economic growth, we usually get a degree of inflation.
Disadvantages of Inflation

High inflation rates tend to cause uncertainty and confusion leading to less investment. It is argued that countries with persistently higher inflation, tend to have lower rates of investment and economic growth.
Higher inflation leads to lower international competitiveness.
Menu costs. – Costs of changing price lists.
Inflation and stagnant wage growth leads to declining incomes.
Inflation can reduce the real value of savings, which might particularly affect old people who live on savings. However, it does depend on whether interest rates are higher than the inflation rate.
While deflation
Low prices for all
This means that low income earners will be able to afford essential items, so they'll be escaping the poverty bracket.
Also, because prices are low, workers may behave rationally and accept wage cuts, decreasing the costs of production for UK firms.
Thats all I can think of from the top of my head.

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[ajwalker]

I'm in the middle of a deep dive into quantitative analysis of bitcoin's potential monetary value into the future, modeling for various scenarios. In your opinion, when calculating for total amount of bitcoin mined, should I exclude Satoshi's huge account and an estimate for the total amount lost into oblivion, given the likelihood they will likely never be spent or transferred?

[phrost]

USD inflation was 1.9% last month.

It will close at FED target 2.5% this year. It means that if you have USD 100.00 under your mattress you now have $97.50 as dollar purchasing power.

[resty]

An excellent post that I'll sticky so people can learn from.

Inflation and Deflation is just really happen every now and then, it depend upon the investor, traders and anyone who use  this Bitcoin to their own Business, it is absolutely being higher of value of currency of Bitcoin if we are continuously patronizing.

[musharaf]

yes good information
demand and supply are two tools through which the price change is done. the demand and supply of money make and elasticity through which inflation happens.

[thougi]

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.

[cotton ball]

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.

Bitcoin stands alone and is unaffected by fiat although intrinsically the dollar still provides a benchmark for every exchange, bitcoin fluctuations are determined by rumors alone and no binding intervention from traders or governments. If we look again, altcoin movements also support bitcoin fluctuations.

[ZeidFreak]

useful informations about how the price and value of bitcoin go up and down in the market.
but as of now the market is driven by the big players or big whale as we called them. they are the one that control the market now.
bitcoin is a very volatile but as of the moment, bitcoin is the best investment portfolio.  i experienced it myself.. started from january this year. and have a 2000% gain from my capital.. hehe. hope we see one more bull run this year! 10,000$/Bitcoin .. HERE WE COME!! hehehe

[Tigran88]

Government economies have various tools to stimulate or cool down the economy. Bitcoin has none of this and it will go wherever people and their emotions take it. It's a scary thought.

If all Governments decide to get rid of bitcoin then they can get it or at least greatly weaken it.
It is enough to look at the situation with China.
I am sure that many investors from the government invest millions in BTC. But I believe that it will grow more and more.

[micloop]

How big efforts to take Bitcoin down, as strongly will be the price recovery, if it happens (we believe that will).
Governments are trying to control and desestimulate people to buy btc, but i think it's the future of all fiat money is vanish and the BTC will remain as money.

[MANNYKURSH]

Hello there,

Can we ralete the price and money supply of BTC to the political movement of US with other countries?

[thoham]

Deflation in the traditional financial ecosystem is a bad thing. Then again, cryptocurrencies such as bitcoin cannot be compared to any other currency in the world, thus making it a rather moot point. It is also a  clear indication of how most economists are stuck in their old ways of thinking. Deflation is often associated with economies that not performing all that well. In most cases, deflation leads to falling prices. If that were to happen to bitcoin, things could go from bad to worse rather quickly.

[Cmoh]

Like Gold as the evergreen asset for the investors during the inflationary period, is it possible can bitcoin be the better asset for the hedging instrument? Always we face the situation of inflationary period but what about Deflation. Is that occur in real life ever anybody heard?

[smokeydog]

Greetings everyone,

...little confession here, I think I may be a Keynesian ...

I doubt Keynes himself would approve of what central banks are doing today.  I think he would likely say something like "no no you missed my point and went too far".

Even Keynes knew he was offering a pyrmid scheme and knew full well he would be dead before it collapsed.   His famous statement "But this long run is a misleading guide to current affairs. In the long run we are all dead".   Well, in 1971 Nixon turned over the US monetary system to the ideas of Keynes.   Here we are approaching 50 years and the system is under major stress and yes, in the long run it will be dead only I don't think it will be that long.  Those who will be dealing with the aftermath in the not so distant future, won't have much good to say about Keynes.  That is those who didn't buy bitcoins instead of whole life insurance thinking it was an investment.

Today it costs the US mint 6 cents to make a 5 cent nickel,  will it cost 1 dollar 10 years from now?  AND a penny is 99 percent zinc with a bit of copper plating.  I still have 95 percent silver 10 cent coins which are now worth almost 2 dollars while a new dime is 10 cents which won't buy a loaf of bread but, the old ones are still good for a loaf of bread.

[Youghoor]

There is always going to be more money supply than demand, that is why there is inflation in almost all the countries, and when the countries start printing more bills, the massive inflation starts, just like what happened on venezuela, the government could not stop printing bills, and now 1 peso of them are less than the value of a satoshi. But in bitcoin this works different, because it has a fixed quantity and nobody can create more or less than the fixed supply.

[Turan100]

the price inflation and deflation depends on peoples holding it in their wallets i mean not the fishes in the sea am talking about the big whales of bitcoin, and stays increasing by time that's the algorithm of bitcoin, but sometimes we see a small decreasing that because of the demand and such, anyway we can't predict bitcoin scam but make sure that bitcoin never goes down down.

[zzSunZZ]

Inflation occurs when there is a sustained increase in the general price level. Traditionally high inflation rates are considered to be damaging to an economy. High inflation creates uncertainty and can wipe away the value of savings.
Advantages of Inflation

Deflation is potentially very damaging to the economy and can lead to lower consumer spending and lower growth. For example, when prices are falling, consumers are encouraged to delay purchasing.
A moderate inflation rate reduces the real value of debt. If there is deflation, the real value of debt increases leading to a squeeze on disposable incomes.
Moderate rates of inflation allows prices to adjust.
Moderate rates of inflation is sign of a healthy economy. With economic growth, we usually get a degree of inflation.
Disadvantages of Inflation

High inflation rates tend to cause uncertainty and confusion leading to less investment. It is argued that countries with persistently higher inflation, tend to have lower rates of investment and economic growth.
Higher inflation leads to lower international competitiveness.
Menu costs. – Costs of changing price lists.
Inflation and stagnant wage growth leads to declining incomes.
Inflation can reduce the real value of savings, which might particularly affect old people who live on savings. However, it does depend on whether interest rates are higher than the inflation rate.
While deflation
Low prices for all
This means that low income earners will be able to afford essential items, so they'll be escaping the poverty bracket.
Also, because prices are low, workers may behave rationally and accept wage cuts, decreasing the costs of production for UK firms.
Thats all I can think of from the top of my head.

You guys can't really believe it works like this, can you? Deflation over 2 years vs. inflation over 100 years is not even close to a fair comparison, to start. Secondly, deflation of this scale discourages an active economy (as we've already seen with BTC) and makes it worse, especially with a limited currency like BTC. People sit on their BTC and don't spend it because it's an investment. Third, cost of goods/services and salaries are (though sometimes poorly) adjusted for inflation. If you got paid $10/hr in 1929 you were doing really, really well. If you get paid $10 in 2017 you can barely make ends meet. Finally, you can't honestly believe that deflation will continue at the rate it has been with BTC forever.

[Nathan Dyer]

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?

[blockman]

Hello there,

Can we ralete the price and money supply of BTC to the political movement of US with other countries?

Not that really, maybe yes or maybe know. Look on what recently happened to China, they banned ICOs and closed exchanges and it's obvious the effect of it. The price was affected and we have seen on how fast the price of bitcoin stumbled with a follow of Dimon's statement about bitcoin fraud. But now, it's a good thing that we are now pumping up.

[synthlock]

You guys can't really believe it works like this, can you? Deflation over 2 years vs. inflation over 100 years is not even close to a fair comparison, to start. Secondly, deflation of this scale discourages an active economy (as we've already seen with BTC) and makes it worse, especially with a limited currency like BTC. People sit on their BTC and don't spend it because it's an investment. Third, cost of goods/services and salaries are (though sometimes poorly) adjusted for inflation. If you got paid $10/hr in 1929 you were doing really, really well. If you get paid $10 in 2017 you can barely make ends meet. Finally, you can't honestly believe that deflation will continue at the rate it has been with BTC forever.

This, exactly. If people just sit on it, you're creating a stagnating economy with that currency. I just wish we had a better solution than the current tx fees.