Inflation and Deflation of Price and Money Supply

[hostmaster]

If said "In inflationary system like we have today it's suggested that 2% inflation is "healthy" for the economy."
true, why we don't have inflation of bitcoins? Please correct me if i am wrong.   Bitcoins numbers will not rise in the far future. But demand will increase what can happen after that...

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[billyjoeallen]

If said "In inflationary system like we have today it's suggested that 2% inflation is "healthy" for the economy."
true, why we don't have inflation of bitcoins? Please correct me if i am wrong.   Bitcoins numbers will not rise in the far future. But demand will increase what can happen after that...

any quantity of money is sufficient for the money supply. prices adjust. inflation discourages capital formation, which, along with technology improvements, is what increases productivity, wealth and the standard of living for everybody. Capital formation is being destroyed by the fiat currencies and global productivity is slowing because of it.

[benzone]

...

any quantity of money is sufficient for the money supply. prices adjust. inflation discourages capital formation, which, along with technology improvements, is what increases productivity, wealth and the standard of living for everybody. Capital formation is being destroyed by the fiat currencies and global productivity is slowing because of it.

I'm afraid you got it all completely wrong. Most prices (except high tech gadgets) are typically very rigid downward and mild, non-destructive inflation encourages putting money to use from passive cash to active capital form. Deflation on the other hand encourages being passive, holding on to cash, not investing, not taking loans and is as such quite devastating to any economy. Japan is a typical example where deflation alone has crippled a very healthy economic growth for decades.

[The One]

Just stumbled onto this thread. Just don't listen to crappy economists in the (neo)-keynesian camp, politicians, news channels, or read newspapers. They all talk a load of tripe.

Inflation - increase in money supply, also known as monetary inflation. E.g money supply in UK £1000, fiat increase in money supply £100, new total money supply £1100 = inflation 10%.
Deflation - decrease in money supply, also known as monetary deflation. E.g money supply in UK £1000, fiat decrease in money supply £100, new total money supply £900 = deflation 10%. Note:- deflation on it own is bad for the economy but price deflation isn't. If price were falling faster than deflation then brilliant as purchasing power goes up. The government do not like it as the GDP goes down and leads to recession but that's a myth.

Price inflation - increases in prices of goods/services over a year. Tend to be lower than inflation due to currencies fluctuation and productivity. It would include 'increase' in price where the price remains the same but the good got smaller. E.g £1 for 200grams bar of chocolate and the following year £1 for 180grams bar of chocolate.

Price deflation - opposite of price inflation.

RPI - retail price index - weighted measured index of goods and services according to politicians desire to fool the people into thinking how brilliant they are.

CPI - consumer price index - weighted measured index of goods and services according to politicians desire to fool the people into thinking how brilliant they are and taken to another level of treating the people like idiots. In UK it doesn't include TV licence and council tax (another one but can't remember) thus Labour (ex-dictator Gordon Brown) were always boasting how low the CPI was, while council tax and TV licence were going up above CPI almost every year and wages kept up with CPI, thus slowly we all got poorer, then dolled out tax credits and fucking up the country.

My creation - personal price inflation - i kept a record for 2 years of the cost of food, energy, clothes, rent, everything i spent while i was a student and worked out my personal price inflation. It was 2 times higher than the RPI and just under the inflation itself. Took my spreadsheet to my professor and denounced the government official 'inflation', RPI as a load of bollocks. Needless to say my professor was shocked.

GDP- gross domestic production - formerly known as aggregated demand (Keynes) and still what it is. GDP has nothing to do with growth, that is a myth. Politicians use it to fool the people into thinking how brilliant they are. GDP=P+G+I+(X-M).....private consumption+government spending+investment+(exports-imports). Lets play with some numbers. Assume G, I, X, M are the same and prices of goods/services went up and the consumer had to spend more - P goes up, hence GDP goes up - politicians and people cheering that the country is growing (growth). All because of increases in prices, hahahahahahaha, 99% of the people fall for this crap all the time. GDP is useless and don't ever forget that. The next time politicians go on about the GDP and growing economy and 'we all better off', try not to throw your TV out of the window.

[Xav]

Economists are the types of pseudo-intellectuals that create mathematical models, which almost never work in the real world. Anyway, as far as my understanding goes, today we live in a debts-driven-and-debts-stimulating society, where inflation has a soothing effect. Let's say the GDP is €1 trillion, inflation is 2%, debt is €0.6 trillion, which is 60% of GDP,  and economic growth is 0% then next year GDP reads €1.020  trillion and debt is still €0.6 trillion, which has magically become 'only' 58.8% of GDP. Isn't that great ?! No, it isn't, because someone needs to pay the bill, at the end of the line. Debts do exist in the real world, but they are anonymous, transformed, transferred, disguised and encapsulated within the totality of the money-system and this results in an intrinsic value of contemporary conventional currencies; each coin (real or virtual) hides this shared debt proportionally.

Now, wouldn't the world change all that if we gradually change into a debts-discouraging society driven by a deflationary currency like Bitcoin?

[The One]

Economists are the types of pseudo-intellectuals that create mathematical models, which almost never work in the real world. Anyway, as far as my understanding goes, today we live in a debts-driven-and-debts-stimulating society, where inflation has a soothing effect. Let's say the GDP is €1 trillion, inflation is 2%, debt is €0.6 trillion, which is 60% of GDP,  and economic growth is 0% then next year GDP reads €1.020  trillion and debt is still €0.6 trillion, which has magically become 'only' 58.8% of GDP. Isn't that great ?! No, it isn't, because someone needs to pay the bill, at the end of the line. Debts do exist in the real world, but they are anonymous, transformed, transferred, disguised and encapsulated within the totality of the money-system and this results in an intrinsic value of contemporary conventional currencies; each coin (real or virtual) hides this shared debt proportionally.

Now, wouldn't the world change all that if we gradually change into a debts-discouraging society driven by a deflationary currency like Bitcoin?

You have demonstrated a perfect example why many do not know how to use percentages properly. 60% - 58.8% - looks good, fooled the people, but the actual amount is what more important.

99% of the people i've met thinks inflation (in their mind CPI) is good as it makes the debts appear smaller and it is the creditors who suffer. Creditors are those who have a legal future claim on money. Hence those who lend out money as debt have a claim for that debt to be repaid in the future. What 99% do not understand is that they are also creditors, i.e. those who have insurance policies, pensions, savings.......people have a legal future claim on that money and they also suffer from inflation and not just those who lend the money out.

[Lloydie]

Economists are the types of pseudo-intellectuals that create mathematical models, which almost never work in the real world. Anyway, as far as my understanding goes, today we live in a debts-driven-and-debts-stimulating society, where inflation has a soothing effect. Let's say the GDP is €1 trillion, inflation is 2%, debt is €0.6 trillion, which is 60% of GDP,  and economic growth is 0% then next year GDP reads €1.020  trillion and debt is still €0.6 trillion, which has magically become 'only' 58.8% of GDP. Isn't that great ?! No, it isn't, because someone needs to pay the bill, at the end of the line. Debts do exist in the real world, but they are anonymous, transformed, transferred, disguised and encapsulated within the totality of the money-system and this results in an intrinsic value of contemporary conventional currencies; each coin (real or virtual) hides this shared debt proportionally.

Now, wouldn't the world change all that if we gradually change into a debts-discouraging society driven by a deflationary currency like Bitcoin?

You have demonstrated a perfect example why many do not know how to use percentages properly. 60% - 58.8% - looks good, fooled the people, but the actual amount is what more important.

99% of the people i've met thinks inflation (in their mind CPI) is good as it makes the debts appear smaller and it is the creditors who suffer. Creditors are those who have a legal future claim on money. Hence those who lend out money as debt have a claim for that debt to be repaid in the future. What 99% do not understand is that they are also creditors, i.e. those who have insurance policies, pensions, savings.......people have a legal future claim on that money and they also suffer from inflation and not just those who lend the money out.

No, actually the 1% hold a lot of assets, which are being driven up by the debt based system. Most of the 99% own a tiny amount of assets per person in comparison. They are creditors but not in any meaningful way.

The 99% will never be able to become the 1%. This is the system. It is unfair and it has been in place for the last fifty years.

99% of people you meet liking inflation indicates you are probably working in finance, economics or government. Real people with real jobs hate inflation. Especially the millions of unemployed people in the US and Europe.

Debt is just a civilised version of slavery. Maybe we don't need debt. At least now we have a choice in an alternate monetary system called bitcoin.

[PolkRB]

Economists are the types of pseudo-intellectuals that create mathematical models, which almost never work in the real world. Anyway, as far as my understanding goes, today we live in a debts-driven-and-debts-stimulating society, where inflation has a soothing effect. Let's say the GDP is €1 trillion, inflation is 2%, debt is €0.6 trillion, which is 60% of GDP,  and economic growth is 0% then next year GDP reads €1.020  trillion and debt is still €0.6 trillion, which has magically become 'only' 58.8% of GDP. Isn't that great ?! No, it isn't, because someone needs to pay the bill, at the end of the line. Debts do exist in the real world, but they are anonymous, transformed, transferred, disguised and encapsulated within the totality of the money-system and this results in an intrinsic value of contemporary conventional currencies; each coin (real or virtual) hides this shared debt proportionally.

Now, wouldn't the world change all that if we gradually change into a debts-discouraging society driven by a deflationary currency like Bitcoin?

You have demonstrated a perfect example why many do not know how to use percentages properly. 60% - 58.8% - looks good, fooled the people, but the actual amount is what more important.

99% of the people i've met thinks inflation (in their mind CPI) is good as it makes the debts appear smaller and it is the creditors who suffer. Creditors are those who have a legal future claim on money. Hence those who lend out money as debt have a claim for that debt to be repaid in the future. What 99% do not understand is that they are also creditors, i.e. those who have insurance policies, pensions, savings.......people have a legal future claim on that money and they also suffer from inflation and not just those who lend the money out.

No, actually the 1% hold a lot of assets, which are being driven up by the debt based system. Most of the 99% own a tiny amount of assets per person in comparison. They are creditors but not in any meaningful way.

The 99% will never be able to become the 1%. This is the system. It is unfair and it has been in place for the last fifty years.

99% of people you meet liking inflation indicates you are probably working in finance, economics or government. Real people with real jobs hate inflation. Especially the millions of unemployed people in the US and Europe.

Debt is just a civilised version of slavery. Maybe we don't need debt. At least now we have a choice in an alternate monetary system called bitcoin.

Very well said!

[benzone]

...
No, actually the 1% hold a lot of assets, which are being driven up by the debt based system. Most of the 99% own a tiny amount of assets per person in comparison. They are creditors but not in any meaningful way.

The 99% will never be able to become the 1%. This is the system. It is unfair and it has been in place for the last fifty years.

99% of people you meet liking inflation indicates you are probably working in finance, economics or government. Real people with real jobs hate inflation. Especially the millions of unemployed people in the US and Europe.

...

No.

Inflation in EU is very low, monetary policy is restrictive and EU has significantly higher unemployment than any other major economy. I haven't heard a single unemployed person complain about inflation ever and I've been around a while (Yugoslavia with hyperinflation, Slovenia with own fresh currency and now €). Which 'real' people are you talking about?

You are also neglecting companies, business. They do most of the borrowing. People work in companies. Companies need to take loans (or issue shares) to grow business and offer jobs. If a company stops to borrow money it's usually a seriously bad sign, it means it has no idea, no room to grow and it will be overrun by competitors, people lose jobs.

[Lloydie]

...
No, actually the 1% hold a lot of assets, which are being driven up by the debt based system. Most of the 99% own a tiny amount of assets per person in comparison. They are creditors but not in any meaningful way.

The 99% will never be able to become the 1%. This is the system. It is unfair and it has been in place for the last fifty years.

99% of people you meet liking inflation indicates you are probably working in finance, economics or government. Real people with real jobs hate inflation. Especially the millions of unemployed people in the US and Europe.

...

No.

Inflation in EU is very low, monetary policy is restrictive and EU has significantly higher unemployment than any other major economy. I haven't heard a single unemployed person complain about inflation ever and I've been around a while (Yugoslavia with hyperinflation, Slovenia with own fresh currency and now €). Which 'real' people are you talking about?

You are also neglecting companies, business. They do most of the borrowing. People work in companies. Companies need to take loans (or issue shares) to grow business and offer jobs. If a company stops to borrow money it's usually a seriously bad sign, it means it has no idea, no room to grow and it will be overrun by competitors, people lose jobs.

As there is low inflation in Europe as you say, people don't complain about inflation. Instead they complain about poverty, unaffordable goods and rising property prices. These are all symptoms of the debt based fiat system artificially raising the prices of food, fuel and assets.

Borrowing is important to the debt based fiat system, however it perpetuates inequality. A new paradigm is dawning. Individually, we can choose to opt out of fiat and into bitcoin. We can rebuild the economy like the Germans did after WW2 on a bedrock of hard money. Bitcoin is harder than the Deutschmark. The euro was also meant to be hard like the Deutschmark but weak countries like Greece, Portugal and Spain incurred too much debt and are now trying to soften the Euro via ECB money printing.

Only weak uncompetitive countries in the EU want a soft currency.  They want more than they are entitled to. Strong countries like Germany, Finland and Austria do not fear a hard currency. They love it because it preserves what they are entitled due to their economic efficiencies.

[scottii]

I'm sure this is a common question, especially since coin generators have been released. 

What's the speculation on inflation/deflation for all these new altcoins?  I'm sure they will continue to come like the open flood gates to a water dam.

[The One]

Economists are the types of pseudo-intellectuals that create mathematical models, which almost never work in the real world. Anyway, as far as my understanding goes, today we live in a debts-driven-and-debts-stimulating society, where inflation has a soothing effect. Let's say the GDP is €1 trillion, inflation is 2%, debt is €0.6 trillion, which is 60% of GDP,  and economic growth is 0% then next year GDP reads €1.020  trillion and debt is still €0.6 trillion, which has magically become 'only' 58.8% of GDP. Isn't that great ?! No, it isn't, because someone needs to pay the bill, at the end of the line. Debts do exist in the real world, but they are anonymous, transformed, transferred, disguised and encapsulated within the totality of the money-system and this results in an intrinsic value of contemporary conventional currencies; each coin (real or virtual) hides this shared debt proportionally.

Now, wouldn't the world change all that if we gradually change into a debts-discouraging society driven by a deflationary currency like Bitcoin?

You have demonstrated a perfect example why many do not know how to use percentages properly. 60% - 58.8% - looks good, fooled the people, but the actual amount is what more important.

99% of the people i've met thinks inflation (in their mind CPI) is good as it makes the debts appear smaller and it is the creditors who suffer. Creditors are those who have a legal future claim on money. Hence those who lend out money as debt have a claim for that debt to be repaid in the future. What 99% do not understand is that they are also creditors, i.e. those who have insurance policies, pensions, savings.......people have a legal future claim on that money and they also suffer from inflation and not just those who lend the money out.

No, actually the 1% hold a lot of assets, which are being driven up by the debt based system. Most of the 99% own a tiny amount of assets per person in comparison. They are creditors but not in any meaningful way.

The 99% will never be able to become the 1%. This is the system. It is unfair and it has been in place for the last fifty years.

99% of people you meet liking inflation indicates you are probably working in finance, economics or government. Real people with real jobs hate inflation. Especially the millions of unemployed people in the US and Europe.

Debt is just a civilised version of slavery. Maybe we don't need debt. At least now we have a choice in an alternate monetary system called bitcoin.

I don't work. Real people do not understand inflation, they think CPI IS inflation when it isn't. Unemployment are caused by government interferences in the economy.

[The One]

...
No, actually the 1% hold a lot of assets, which are being driven up by the debt based system. Most of the 99% own a tiny amount of assets per person in comparison. They are creditors but not in any meaningful way.

The 99% will never be able to become the 1%. This is the system. It is unfair and it has been in place for the last fifty years.

99% of people you meet liking inflation indicates you are probably working in finance, economics or government. Real people with real jobs hate inflation. Especially the millions of unemployed people in the US and Europe.

...

No.

Inflation in EU is very low, monetary policy is restrictive and EU has significantly higher unemployment than any other major economy. I haven't heard a single unemployed person complain about inflation ever and I've been around a while (Yugoslavia with hyperinflation, Slovenia with own fresh currency and now €). Which 'real' people are you talking about?

You are also neglecting companies, business. They do most of the borrowing. People work in companies. Companies need to take loans (or issue shares) to grow business and offer jobs. If a company stops to borrow money it's usually a seriously bad sign, it means it has no idea, no room to grow and it will be overrun by competitors, people lose jobs.

What did you meant by inflation in EU is very low?.....you call inflation running at 10% to 20% very low. I think you were referring to CPI which IS not inflation. Companies can borrow from the bank via people's savings. Look at China and S. Korea.

[benzone]

...
What did you meant by inflation in EU is very low?.....you call inflation running at 10% to 20% very low. I think you were referring to CPI which IS not inflation. Companies can borrow from the bank via people's savings. Look at China and S. Korea.

We need to go to the start of this thread. The idea of dividing price inflation and money supply inflation makes no sense. According to all major sources, these two categories are just cause and effect of inflation. CPI is the most basic measure of inflation worldwide.

What are your 10-20% supposed to mean and where did you get this data?

As for China; i wouldn't refer to it as an example of a place where people i.e. workers have a good and fair life, it is in fact quite the opposite. See Foxconn...?

[PolkRB]

This video somewhere in the middle explains how deflation can work out just fine. It helped me to understand it much better:
https://www.youtube.com/watch?v=JP9-lAYngi4

[deisik]

We need to go to the start of this thread. The idea of dividing price inflation and money supply inflation makes no sense. According to all major sources, these two categories are just cause and effect of inflation. CPI is the most basic measure of inflation worldwide.

What are your 10-20% supposed to mean and where did you get this data?

This is oversimplification. Inflation (as price increase) also depends on money velocity and productivity. I am also curious about the source of the data...

[benzone]

....
This is oversimplification. Inflation (as price increase) also depends on money velocity and productivity. I am also curious about the source of the data...

I didn't say that money supply is the only variable in the equation of exchange. But we need to respect the economic terms for what they are and not mix different categories even if they are in a cause and effect relationship.

Equation of exchange (most popular form): M*V = P*Q

M - money supply (mass of money in circ.)
V - velocity
P - price level
Q - productivity or quantity of product (goods, services)

So if you have a growing economy (Q is rising) and there is no change in the way you do business i.e. trade (V doesn't change) you need to increase the money supply to support this growth. Most prices are downward rigid and this is the only way to make it work. If Q and M are in proportion there is no inflation, just healthy growth supported by growing money supply.

This is all pretty elementary, no differences in opinions between economic theories etc.

[deisik]

....
This is oversimplification. Inflation (as price increase) also depends on money velocity and productivity. I am also curious about the source of the data...

I didn't say that money supply is the only variable in the equation of exchange. But we need to respect the economic terms for what they are and not mix different categories even if they are in a cause and effect relationship

Right, but we should always keep in mind that there are at least two more independent factors (since Fisher's equation isn't perfect either as it may just not work) that can and do override the money supply factor in this cause-and-effect relation...

[Lloydie]

....
This is oversimplification. Inflation (as price increase) also depends on money velocity and productivity. I am also curious about the source of the data...

I didn't say that money supply is the only variable in the equation of exchange. But we need to respect the economic terms for what they are and not mix different categories even if they are in a cause and effect relationship

Right, but we should always keep in mind that there are at least two more independent factors (since Fisher's equation isn't perfect either as it may just not work) that can and do override the money supply factor in this cause-and-effect relation...

Wow, bamboozle me with BS why don't you? What? You mean an economic formula called Fisher's equation is not perfect? Unbelievable! Imagine that, an imperfect economic equation that may not work.

Relax guys. With bitcoin, we won't have to worry about the money supply. It's fixed. Nothing anyone can do about that as the protocol was set from day one in case you didn't notice. So think about getting real jobs.

Btw, I noticed Okun's law is breaking down too. Something to do with the ZLB. Seems like they had to do more QE but now they are scared of the cost benefits trade off. So they are going to give forward guidance, except the vice chair of the fed doesn't believe in it and he used to be the teacher of them all including yellen. And if the participation rate was held constant, unemployment did not improve. So why did they print $4 trillion again? Uh-oh, I believe you guys have no fucking clue what's going on.

[Lloydie]

....
This is oversimplification. Inflation (as price increase) also depends on money velocity and productivity. I am also curious about the source of the data...

I didn't say that money supply is the only variable in the equation of exchange. But we need to respect the economic terms for what they are and not mix different categories even if they are in a cause and effect relationship.

Equation of exchange (most popular form): M*V = P*Q

M - money supply (mass of money in circ.)
V - velocity
P - price level
Q - productivity or quantity of product (goods, services)

So if you have a growing economy (Q is rising) and there is no change in the way you do business i.e. trade (V doesn't change) you need to increase the money supply to support this growth. Most prices are downward rigid and this is the only way to make it work. If Q and M are in proportion there is no inflation, just healthy growth supported by growing money supply.

This is all pretty elementary, no differences in opinions between economic theories etc.

The above is a BS equation as since the ZLB, the Fed has added to money supply but velocity has fallen to 1965 levels. And get this, the Fed can't explain why!!!

Yes my friends, QE/money printing is one huge EXPERIMENT that no one truly understands. But I have a pretty good idea it's not going to end well.

Honestly, we should get these fucking useless equations out of here.

Just because Q is increasing doesn't mean the economy is growing. It could simply be asset price inflation and speculative activity creating the false impression of economic growth.  You are assuming V doesn't change when it has fallen to decade lows? WTF?

As the money supply has increased V has fallen commensurately. Bet you can't find that one in your neo classical text books.

This is the only way to make it work?!? Heads up fellas, it's not working. Period.

For everything else there is Bitcoin.