Inflation and Deflation of Price and Money Supply

[painlord2k]

“If you don’t believe me or don’t get it, I don’t have time to try to convince you, sorry.”

[dinofelis]

I actually covered this, long ago, so I'm just going to recap and skip to the end.  Debt is of the form "A owes B to C".  Where we disagree is that you think that the essence of debt is in the nouns A, B and C, while I think it is the verb, "owes".

Mortgage: A=homeowner, B=cash payment stream, C=bank (in reality C is usually investors via a MBS)
Mob favor: A=mob boss**, B=(ABSTRACT), C=poor shopkepper
Bearer bond: A=bond issuer, B=cash, C=(ABSTRACT)
Dollar: A=(ABSTRACT), B=(ABSTRACT), C=(ABSTRACT)

Ok, but then I can play that game too.  "property of asset X by Y" is then:

A = ABSTRACT ; B = X ; C = Y

If I own a house, we can then say that abstractly one owes me a house, and I am enjoying the usage of that debt.

You can make it even more fun, and in fact define property as: A = Y, B = X, C = children:
if I possess a house, then in fact I owe a house to my children or who-ever comes after me when I will die  :-)
What defines property then, is the debt I will have towards my children if I die right away (because they will inherit it then).

Once you start emptying a concept from its fundamental characteristics (you call it "abstract") you can just say anything !

What is essential to me in the concept of debt, is that A and B are not abstract, and that punishment of some kind follows if it is not honored.  Otherwise it is not distinguishable from other concepts.

[dinofelis]

If a mob boss owes you a favor, do you imagine that there is no debt because there is no fixed exchange rate between "a favor" and loaves of bread, or between favors and global production?  You could argue that this isn't a debt for whatever reason, but if you ask a bunch of random people, I'm sure you'll find that pretty much everyone considers this to be "debt".*

It is a very good example because again it explains the difference between debt and property !

If I did something for a mob boss, and we wrote out clearly what he's supposed to do as a favor for me, then he has a debt.
For instance: "ok, I will give a false testimony to the police about when you robbed the bank to make you go free-out, but in return, you will go and smash the shop of my competitor, understood ! "

and I give my false testimony to the police, then the mob boss has a debt: he has to smash the shop of my competitor.

On the other hand, if I just propose to give a false testimony, to win his sympathy, with the idea that one day, he will return the favor, then there is no debt.  However, I own abstractly some of his sympathy.  That could be an illusion on my part.  I may have invested wrongly in what I think to be the sympathy of a mob boss, with the idea that one day, I might ask him a favor.  But if on that day, he laughs in my face, then I just invested wrongly. 

This is btw, something people do all the time.  You invest often in doing things for others, with the idea to build up a capital of sympathy.  But there are no guarantees of what it is worth.  You have simply the ownership of a very abstract entity which is what you think to be sympathy.

You often do that as an employee.  You do overtime, you work harder than you are supposed to contract-wise, with the hope of building up a capital of favor with your employer.   You can then ask for a raise.  But the employer doesn't owe you a raise.  He will only give you a raise if he thinks that this will motivate you further to invest your overtime in the company.  Not for what you have done.  Only for what he thinks he will still get out of you.  Your investing in overtime is not a debt of your employer you are engaging.  He didn't promise anything.

It would be different if it were like this: "OK, if you can finish this projet 2 months earlier than agreed, you will get a promotion".  NOW, there is a debt from the employer to you, if you succeed.  If you don't get the promotion, you can rightly complain: "hey, there was an agreement !".

If you did overtime, and then you ask for a raise, without such an agreement, you may get as an answer "I didn't promise anything !".

So in one case, you are the abstract owner of some sympathy capital (you think you have gathered), which may be worth nothing after all ; in the other case there is an agreement, and hence a debt.

[kjj]

If a mob boss owes you a favor, do you imagine that there is no debt because there is no fixed exchange rate between "a favor" and loaves of bread, or between favors and global production?  You could argue that this isn't a debt for whatever reason, but if you ask a bunch of random people, I'm sure you'll find that pretty much everyone considers this to be "debt".*

It is a very good example because again it explains the difference between debt and property !

On the other hand, if I just propose to give a false testimony, to win his sympathy, with the idea that one day, he will return the favor, then there is no debt.  However, I own abstractly some of his sympathy.  That could be an illusion on my part.  I may have invested wrongly in what I think to be the sympathy of a mob boss, with the idea that one day, I might ask him a favor.  But if on that day, he laughs in my face, then I just invested wrongly.

You forgot to quote my footnote.  Here, I'll post it again:

* You can define debt narrowly and declare everyone else to be wrong, but this is folly.  Economics is ultimately the study of people.  If you disregard them, you are just jerking yourself off.

P.S.  LOL.  "own" some of his sympathy?  That's your idea of property?

[dinofelis]

P.S.  LOL.  "own" some of his sympathy?  That's your idea of property?

It is not stranger than your concept of debt without obligation, liability or engagement :-)

[FederalReserveofWIP]

You all may be very interested in my new Federal Reserve of WIP coin, which is centralized and by fiat.  There is a discussion thread in here as well.

[STT]

Pretty sure we had a QE coin at one point and it was an excellent demonstration of value dynamics within that system

So in one case, you are the abstract owner of some sympathy capital (you think you have gathered), which may be worth nothing after all ; in the other case there is an agreement, and hence a debt.

I think they can both be equally worthless.    The main point would be a written contract, in reference to dollar debt there is not fixed worth to 'the promise' only the idea of exchange or release from taxes within that nation and that relys on trade being in demand.  [If you hold a trillion of this promise, this is a worry and a liability]   Russia perhaps has a problem with this now as its main trade is oil and gas which has become too expensive to produce relative to their competitors retail pricing. It could apply to dollar also as USA is perhaps also too singularly reliant or leaning on one effect to balance the rest of its economy.
 
  I think December registered the largest ever manufacturing trade deficit, yet its not a problem while we are propped up and China can just make things for us.   China has their own problems and the West cant dictate how factors play out just as Russia could not dictate outside its borders and is weak

[Milotyc]

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.

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!

No.

Price-Inflation = increasing prices.

Price-Deflation = decreasing prices.

That's all actually. A Bitcoin (and any other unit of money) loses/gains purchasing power as a result of increasing/decreasing prices of goods and services.

Inflation =/= bitcoin stock market rate goes down.
Deflation =/= bitcoin stock market rate goes up.

[Milotyc]

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.

Again, no.

Monetary inflation = increase in the money supply.
Monerary deflation = decrease in money supply.

That's all.

[Milotyc]

In any real economy, there is a guarantee that the Money Supply will increase.

Dude stop.

[dscotese]

Oooh Yay!  Let's all be like Plato and pretend that words have objective meanings so we can argue about them without ever getting anywhere!

There are plenty of people brainwashed or dishonest enough to misuse terms in a way that makes it difficult to understand things.  An argument of what the words mean only suggests that you are a slave to an utterance using those words, and so you must get others to use them the way you understand them.  That seems kind of silly and pointless (and cultish and religious and academic).  What they mean is important if you want to understand a claim made using them, but whoever made the claim can simply replace them with other words that are simpler (and often more numerous).

[deisik]

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.

Again, no.

Monetary inflation = increase in the money supply.
Monerary deflation = decrease in money supply.
That's all.

Did you just coin the phrase for yourself? Regarding monetary inflation, yes, there is such a notion meaning increase in the money supply. Actually it predates the usage of the word to express the notion of rising prices. But the word deflation is used exclusively to mean falling prices...

What you meant to say is labeled "contraction of money supply"

[Mcqueen44]

So in a sense, are the deflation and inflation of BTC kind of like stocks?
Since it's effected by current events relating to BTC.
And also it's ran by supply and demand?

[dscotese]

So in a sense, are the deflation and inflation of BTC kind of like stocks?
Since it's effected by current events relating to BTC.
And also it's ran by supply and demand?

I recommend not using words in a question whose meanings are being debated.

In a sense, the deflation of bitcoin (ie bitcoins get lost in unrecoverable private keys), can be like stock if you accidentally burn the certificates, but even then, they're registered (bitcoins are NOT), so burned stock certificates can be replaced.  So not like stock.

Inflation of bitcoins (miners create new coins by solving blocks) is like stock, as if the issuer issues 25 new shares every ten minutes though, so a really weird stock.

Of course current events relating to BTC affect btc and, like anything that can be bought and sold, it's "run" by supply and demand.

[twiifm]

Money is an abstraction used to settle debts.  Notes and coins are physical representations of that abstraction regardless if they are made of gold or paper.  The only reason gold was used as the material of choice is it had the desirable properties.

[dinofelis]

Money is an abstraction used to settle debts. 

This is why this worked so well in the Weimar republic :-)

[twiifm]

Money is an abstraction used to settle debts. 

This is why this worked so well in the Weimar republic :-)

That has to do with belief or confidence in the abstraction. 

[dinofelis]

Money is an abstraction used to settle debts. 

This is why this worked so well in the Weimar republic :-)

That has to do with belief or confidence in the abstraction. 

Indeed.  Now, belief or confidence in the abstraction of being able to settle FUTURE debts is nothing else but...

a form of speculation !

In other words, money is really a totally speculative asset. 
Totally (that's what your "abstract" means: the money carrier has no usage value as consumption or as capital production good) - its only value resides in speculation.

It is an asset, because you can possess it.

And it has the specific feature that it is accepted very generally to settle debts.  Any asset can settle debts, on the condition that it is accepted by the creditor.  You can pay a debt in apples, you can pay a debt in labor, you can pay a debt in state bonds, you can pay a debt with stocks, but not all creditors accept that.  Money has the peculiar property to be generally accepted.  In fact, with fiat money, this is usually imposed by law ("legal tender").  You are OBLIGED to accept it.

[twiifm]

Money is an abstraction used to settle debts. 

This is why this worked so well in the Weimar republic :-)

That has to do with belief or confidence in the abstraction. 

Indeed.  Now, belief or confidence in the abstraction of being able to settle FUTURE debts is nothing else but...

a form of speculation !

In other words, money is really a totally speculative asset. 
Totally (that's what your "abstract" means: the money carrier has no usage value as consumption or as capital production good) - its only value resides in speculation.

It is an asset, because you can possess it.

And it has the specific feature that it is accepted very generally to settle debts.  Any asset can settle debts, on the condition that it is accepted by the creditor.  You can pay a debt in apples, you can pay a debt in labor, you can pay a debt in state bonds, you can pay a debt with stocks, but not all creditors accept that.  Money has the peculiar property to be generally accepted.  In fact, with fiat money, this is usually imposed by law ("legal tender").  You are OBLIGED to accept it.

That's not how most people use the word speculation.  Speculation usually means when people try to earn money from price increase being long an asset. (or price decrease in a short position)

Outside of Bitcoin and forex, most people don't "buy" money. They simply use it as medium of exchange.  I don't think it has anything to do with speculation but it needs faith in the backing.  People trusted gold notes because gold was backing the notes. They trust fiat because it's backed by future output of issuing country.  (And demand is set by legislature) But when that confidence is shaken like in Weimar Republic, the faith was broken.

[dinofelis]

That's not how most people use the word speculation.  Speculation usually means when people try to earn money from price increase being long an asset. (or price decrease in a short position)

To me, speculation is the bet that in the future, a certain asset you hold will be able to be traded for some value.
It is at first sight broader than your definition of speculation, but in fact it is the same, only you apply it in the case of a trader, who applies to his bet on the future, a discounted cash flow to today, and compares that to the current price.  If the current price is lower than what he estimates getting from it later, he buys the asset.  If not, he sells it if he holds some.

But the basic property of speculation is to bet on the value you will obtain from others in the future for a given asset.  Whether your purpose is to make a benefit, to cut your losses, or to "store value" is independent of it.  Betting on future exchange value is to me the core concept in "speculation".

Even production is a form of speculation: when you produce things, you make a bet that you will be able to trade it (sell it to customers) for a certain amount of value (usually in the form of money).  Investing in future production is hence also a form of speculation.

You only essentially have consumption and speculation in economic action.