Inflation and Deflation of Price and Money Supply

[Blue0x.com]

We are in inflationary-deflation due to many factors.  Inflation primarily from money printing and low rates.  Deflation due to lock-downs and problems caused by the virus.  The only thing missing is velocity of money.  Once velocity spikes, its game over for the USD and probably the current financial system as a whole.

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[Ripe_berry]

The two concepts are wroth studying extensively because it determines our success in labour market. No one prays for deflation but it is inevitable so all we need to do is to be vigilant and study the labour market, then will be go home smiling all the way.

[joro-metaversa]

is there any reason to try to delay the inflation driven recession? are not all measures just postponing and later on amplifying the inevitable recession?

[Sayeds56]

is there any reason to try to delay the inflation driven recession? are not all measures just postponing and later on amplifying the inevitable recession?

I think the best way  to address Inflation is to reduce money supply and FED has already taken a strong step in this direction by increasing interest rate by 0.25% but is negative for stock market and economic growth. The second reason is sky rocking price of crude oil which has increased inflation all over the world, i am quite sure it will come down if Ukraine issue is resolved and a Nuclear deal is signed between USA and Iran that  will quickly bring down the crude oil price.

[headlessgunner]

So fascinating to read economic talk in these forums.  Beautiful to see the bitcoin economy grow. Very interesting that those skeptical about bitcoins economics back in the day are the very same arguments we hear today.  Keynesian thinking BTC

[og kush420]

We are in inflationary-deflation due to many factors.  Inflation primarily from money printing and low rates.  Deflation due to lock-downs and problems caused by the virus.  The only thing missing is velocity of money.  Once velocity spikes, its game over for the USD and probably the current financial system as a whole.

That is well stated - I liked how you have made a combination of Inflationary - deflation. Although inflations plaguing the entire world.
Everyone is in serious trouble in particular the people of underdeveloped country. The after affect of COVID are now obvious - may this crisis end soon we all see yet  a progressive economy. Amen

[GeorgeMFrancis]

Unfortunately there is no chance to avoid inflation and we all need to think about a) what swe should use as an inflation hedge to protect our savings b) how to live with inflation.

[KingTin]

Economics is a very young field and sometimes are even self fulfilling prophecy. Even keysian economics used to be all about taxation and less on supply.

Always be wary of Austrian economists, because they are priori thinking based, while Keysians and Monetarists etc are far more scientific and data driven with math models.
The latter can be broken down and analyzed, the former is basically theories. That also makes Austrian theories easier to sell, but they have been extremely poor at predicting any recession for example.
Some part of The Austrian Theory of the Business Cycle are pretty easy to disagree with too, they said business can handle fluctuations but not gov induced credit expansion, which is simply wrong because everyone made decision based on prediction of future rate. If anything, it is even more predictable. Government policy is largely very predictable, even more so than volatility of gold supply.

At the end, central banks are focused on factors outside money. The economic growth, employment rate and inflation. i.e. the well functioning of the society (in economic terms)
Inflation will always be here to stay, but it isn't difficult to build wealth because of this.

[og kush420]

So fascinating to read economic talk in these forums.  Beautiful to see the bitcoin economy grow. Very interesting that those skeptical about bitcoins economics back in the day are the very same arguments we hear today.  Keynesian thinking BTC

Time and again people keep on complaining about inflation. But with every passing day the prices will increase. There is no end to it.
The only solution is to earn more money - work a little more harder and do a side hustle too. EArn More  Earn More  Earn More. This is only solution.

[ChrisPop]

Time and again people keep on complaining about inflation. But with every passing day the prices will increase. There is no end to it.
The only solution is to earn more money - work a little more harder and do a side hustle too. EArn More  Earn More  Earn More. This is only solution.

Exactly, if you are like the majority of people, you don't own assets that produce enough passive income to sustain your lifestyle. Thus, the only options you have left is to either put in more hours --> get a second job/side-hustle or upskill yourself to secure a better paid position be it at the same workplace or in another company.

Like Buffett said - in a inflationary environment "The best thing you can do is to be exceptionally good at something."
Of course we can't just say hocus-pocus and we become the best in the field, but you can always start working to attain that.

[STT]

My take on inflation currently is its a constant ongoing force with varied time frames.   We can have retractions short term in a counter trend but the overall effect is continually towards the benefit of government debt.   Deflation will raise the cost of servicing debt, the FED has a large fear of that feedback effect but both sides of the spectrum are destructive to GDP.   Inflation we rise nominally but we arent gaining anything.

only options you have left

Its not quite true, people can and do setup their own businesses and experience exceptional growth.   The fastest growth in almost any country comes from the smallest entities not the largest global mega corps despite their advantages from economies of scale the country as a whole requires the smallest participants to be able to do well.

When government is passing in yet more red tape they do usually have the good sense to exclude the very smallest of business from the constant drag of government, I think its usually maybe 50 or less employees are spared requirements.   That can create a problem later but at least that company is likely able to stand before being weighed down further.    In some countries I've heard its very common to run a (startup) business from a car in order to constantly travel and evade the crushing force of government upon any private enterprise.  People might assume that means they are not legal but the business Im referring to is just normal trade in household goods yet its opposed by the giant size of government unfortunately.

[Sayeds56]

Unfortunately there is no chance to avoid inflation and we all need to think about a) what swe should use as an inflation hedge to protect our savings b) how to live with inflation.

It is possible to address inflation issue and bring it down by money tightening policy. This is what FED is doing and recent data of CPI reflects that this policy is working as CPI is on decline and may decline further as crude prices are also falling which might help to stop further increase in interest rate . The best hedge against inflation is Bitcoin which can not be printed more than 21 Million.

[showrecast]

No, that's not true. Demand measurement is simple. We don't have to track trades to measure demand. A very simple way is to organize data on the blockchain.

No need for the price of goods and services to calculate any cryptocurrency demand. The demand we want to calculate should be "base token demand". Calculating this may not be very good for btc maxi.

[Eden Loomis]

An easy-to-understand explanation. In the last sentence, the macroeconomic is mentioned so I have a wonder that these factors like disease can affect in supply, demand of crypto?

[Sayeds56]

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.

As most of crypto  investors & enthusiasts perceive that Bitcoin is fundamentally hedge against inflation like Gold & silver but unfortunately during the past more than 6 months we have witnessed strong co-relation between stock market and Bitcoin. Both markets rise and fall simultaneously, both have similar reaction to CPI/interest rates announcement which  is very hard to understand & find any convincing logic behind this surprising  functionality.

[GldLnRjng]

Perfectly explanatory post!

I would like to add just a little info that helped me a lot to frame out the analytic functioning of inflation/deflation through monetary policy, that is the notion provided by the Quantity theory of money.

It basically relies on a simple mathematical law, that in its exemplified form is known as equation of exchange:

M x V = P x Q

Where

M is the money circulating supply,
V is the velocity of money, or the frequency of transactions in a given period of time(basically how fast money flows in the economy),
P is the average price level,
Q is the real value of goods.

The left-hand member of the equation is the money supply (MS = MxV), while the right-handed one is the money demand (MD = PxQ) and the relation between the two basically states that in an economy all the actors cannot spend more than how much all the actors produce (gain).
Note that MD can also be referred to as the nominal GDP.

Assuming V and Q as constants, (the velocity of circulation of a simple medium of exchange V depends on consumers habits, and the value of goods Q is produced in a situation of full employment -Fisher- and objective), if the monetary policy maker decides to inject money in the system, alias printing new money (increasing the value of M value in the equation), in order to maintain the law (equation) prices must necessarily increase proportionally (Increasing the P value in the equation).

This increase of P is what we call inflation.

If instead of increasing M, we decrease it (destroy money), in order to keep the law valid prices (P) must decrease as well, proportionally. That is what we call deflation.

This model gives an analytic reason on why abundance of money leads to inflation, while scarcity leads to deflation, and why Bitcoin tends to gain purchasing power (facing decreasing supply over time, thus decreasing purchasing price levels for goods, that is to say higher value for itself), while FIATs tends to loose it (facing increasing supply, thus increasing price levels for goods, or lower value for itself).

[Sir Legend]

Inflation and deflation are common things in the country's economy, of course the biggest influencing factor is the circulation of money and supply, when the amount of money in circulation continues to increase, it is certain that inflation will occur. must be able to control both.

[BRINIRHA]

Inflation and deflation are common things in the country's economy, of course the biggest influencing factor is the circulation of money and supply, when the amount of money in circulation continues to increase, it is certain that inflation will occur. must be able to control both.

these two things, namely inflation and deflation are indeed commonplace in a process of running an economy. and even a controlled inflation is also needed in a process of running an economy and market flows. so it can be said that inflation is also divided into two parts. namely controlled inflation and uncontrolled inflation. although today some people mistakenly think that the word inflation is a bad thing. whereas inflation can not always be considered bad if it is controlled inflation. and what should be worried and considered bad is uncontrolled inflation. as is currently the case. because uncontrolled inflation indicates the economy is not doing well (economic crisis). and many factors that cause inflation to become out of control. and it's been mentioned a lot in this thread. Inflation and deflation are something that continues to happen in an economy.

but the types and levels that distinguish them.
Such as the type of inflation that is still under control (at low to medium levels), and the type of inflation that has started to get out of control which continues to increase rapidly (usually called the heavy inflation level - hyperinflation).

[DaNNy001]

This is really an educative post and I have learnt alot from this post and that's the most interesting point about this forum. Before now I have another view towards inflation and deflation of an economy

[Sayeds56]

Inflation and deflation are common things in the country's economy, of course the biggest influencing factor is the circulation of money and supply, when the amount of money in circulation continues to increase, it is certain that inflation will occur. must be able to control both.

Well said. Inflation is the result of increase in money supply but it is not always bad because in inflationary situation people spend money to buy good and services which creates jobs and stimulates growth in economy while deflation means no growth in economy, that is why governments reduce interest rates in deflationary situation to increase money supply to stimulate growth.

The bottom line is inflation at reasonable level is not so bad but when it goes extremely high ( in 2 digits or above like in Turkey & many other developing countries inflation is 70%) then it becomes difficult to buy food and energy for common people of the country.