Inflation and Deflation of Price and Money Supply

[kjj]

As to the double loss and bankrupcy protection. I am speaking about (other version of) ideal world where borrower would rather honorably die in starvation to repay his debt from his own property than not repay the debt, ask for some protection and break his promise to lender.

Oh, you are one of those.  Apparently I was wrong when I thought you misspoke.

I'm with you about 80%, but it seems daft to me that you insist that the borrower be 100% responsible for their own bad judgment, but the lender can toss cash at any warm body that is willing to sign the note.  The borrower's default is evidence that the lender wasn't sufficiently diligent, and should share, to some degree, in the losses.  Modern bankruptcy laws implicitly or explicitly accept this joint responsibility.

At any rate, this is a degenerate circumstance.  Commerce is rarely zero-sum.

[1713870138]

1713870138

[ZephramC]

As to the double loss and bankrupcy protection. I am speaking about (other version of) ideal world where borrower would rather honorably die in starvation to repay his debt from his own property than not repay the debt, ask for some protection and break his promise to lender.

Oh, you are one of those.  Apparently I was wrong when I thought you misspoke.

I'm with you about 80%, but it seems daft to me that you insist that the borrower be 100% responsible for their own bad judgment, but the lender can toss cash at any warm body that is willing to sign the note.  The borrower's default is evidence that the lender wasn't sufficiently diligent, and should share, to some degree, in the losses.  Modern bankruptcy laws implicitly or explicitly accept this joint responsibility.

At any rate, this is a degenerate circumstance.  Commerce is rarely zero-sum.

I also agree with shared responsibility. But the lender should take a loss after the borrower has payed as much as he could. If the borrower goes default then it should be like "he has no more property (except for some minimum for living)*" not like "all his current property is protected". The lender will share the losses simply because there is no more** to take.
I do not know current bankruptcy laws, but what I see is protecting both the borrowers and the lenders from the taxpayers money. Which is wrong.
I think that irresponsible borrowers should go bankrupt (if they taken too much bad loans) THEN irresponsible lenders should go bankrupt
(if they borrowed to too many irresponsible borrowers) THEN investors of irresponsible lenders should feel a loss (if they did not care about loans portfolio and its sustainability). No one of them should be saved from the others money. I agree with intermediate situation where borrower goes bankrupt (not starving to death though, that was too extreme from me) and lender makes a profit. I do not agree with opposite situation where lender takes a loss (or goes bankrupt) and borrower takes a (protected) profit.

* - There is, of course, a great debate about what should be this "minimum for living".
** - I know there is a concept of indebted servitude, but this would be very difficult in current world.

[indiangrad]

Why is it said that BTC will certainly cause deflation? Wouldn't it depend on the velocity of money (in this case BTC) which would define whether deflation really occurs or it is still inflation?

[indiangrad]

Deflation is worse than inflation. Look at Japan. Deflation decreases money velocity, people tend to hoard instead of spending and spending is crucial to the growth of GDP.

That is just spinning on the current central bank meme. It is wrong.

@Erdogan: What is your argument against this point? It makes sense to me on face value.

Basically, the money is only a temporary (short or long time) holder of value, it is not the value itself. Edit: Well it is value, but it is not directly usable. It is neither produced (fixed amount) nor destroyed by consumption. It is always only exchanged for something else. The amount of money in total in the economy is of no special importance, it could be any amount. It should be a fixed amount, to not disturb the prices in the organic economic system, especially, the interest rate, which is the price of moving consumption and investment back and forth on the timeline. The interest rate  should be based on market pricing only.

Here is an analysis of deflation by Salerno. Deflation is good, except if it is a result of confiscation:

https://mises.org/journals/qjae/pdf/qjae6_4_8.pdf

This is the current QE/ZIRP situation uncovered. If it is too long to read, go to the end, search for
"Here's what truth would sound like if I were to re-write Yellen's speech" by Chris Martenson:

http://www.zerohedge.com/news/2014-10-22/how-federal-reserve-purposely-attacking-savers

Thanks for the references. I would definitely go through them and they do add a lot of credibility to discussions rather than just presenting our own views which can differ and I respect that.

[Erdogan]

Why is it said that BTC will certainly cause deflation? Wouldn't it depend on the velocity of money (in this case BTC) which would define whether deflation really occurs or it is still inflation?

It will appreciate in value which is the same as prices of most goods measured in BTC will fall.

That is deflation in prices, but that is of no special concern for the economy. There could also be deflation in produced volumes, which is the same as lower standard of living. (we don't want that).
Last point there could be deflation in the money volume. That is not the case yet for bitcoin, later, lost coins will mean deflation in money volume. For the time being, bitcoin is not much used compared to other money types, and as long as that is the case, bitcoin money volume will not mean much to the economy.

Deflation in money volume due to lost coins, and lower prices due to expanding population (as experienced in the gold era), and increased productivity (hopefully forever), together, means continually lower prices and continually higher standard of living.


Politicians love words that have no defined meaning, because it is easier to say something without saying anything.

[boumalo]

Why is it said that BTC will certainly cause deflation? Wouldn't it depend on the velocity of money (in this case BTC) which would define whether deflation really occurs or it is still inflation?

It will appreciate in value which is the same as prices of most goods measured in BTC will fall.

That is deflation in prices, but that is of no special concern for the economy. There could also be deflation in produced volumes, which is the same as lower standard of living. (we don't want that).
Last point there could be deflation in the money volume. That is not the case yet for bitcoin, later, lost coins will mean deflation in money volume. For the time being, bitcoin is not much used compared to other money types, and as long as that is the case, bitcoin money volume will not mean much to the economy.

Deflation in money volume due to lost coins, and lower prices due to expanding population (as experienced in the gold era), and increased productivity (hopefully forever), together, means continually lower prices and continually higher standard of living.


Politicians love words that have no defined meaning, because it is easier to say something without saying anything.

Deflation is good for the consumer and means higher standard of living, a market economy will push prices lower which means you enjoy more things for the same price but a deflation happens in terms of crisis as well due to the lack of Demand, it is giving a break to the consumer thus is good and is a symptom of the Depression, fighting against lower prices will not end the crisis, it will weaken Demand ever more and lower standard of livings

[hoversensitive]

More stuff to learn from these kind of thread...Thank you..!!!

[BootstrapCoinDev]

While it has value, invest in commodities that would sky rocket in price/value in such a scenario,e.g. seeds, medicine, non perishable food stuffs of all varieties (preferable 'clean', because hey, if you need it, you'd better be getting as much 'punch' per bite as possible), tools, weapons, and of course, gold and silver, but i'd have to say silver more so as it has, historically, always increased an order of magnitude in value over gold in the same time frame.

[Pedro666]

More stuff to learn from these kind of thread...Thank you..!!!

I also thank!

[dinofelis]

I would like to point out something that I wrote in the other thread, but may actually belong more here:

https://bitcointalk.org/index.php?topic=831547.msg9539997#msg9539997

What is somewhat missing in these discussions is the velocity of money (in this case, of bitcoins), which is the inverse of the (harmonic) average of the average *holding time* of a bitcoin before buying something with it.

[capoeira]

how can any debt based economy survive a endless deflation? the problem is the system based on debt, not the inflation

[kjj]

how can any debt based economy survive a endless deflation? the problem is the system based on debt, not the inflation

There are levels of debt.

Money is debt.  This includes dollars, bitcoins, and even gold.  This is highly abstracted debt, not a call on any specific thing, or from any specific person.  Under barter, you trade value for value directly.  With money, you trade value for a claim on value, or money.  When you spend the money, you complete the barter that you had half-completed earlier.  Money is a token of debt from society in general, it represents that you have done something good for society, and that society has not yet done something good for you in return.

When people talk about how the dollar is debt based, they either mean this, and only this, or they are morons repeating catchphrases that they don't understand.  This is heavy shit, and it is possible to go decades with the fuzzy "money is debt" meme in your head, but without understanding what it really means.  I know, I was there.  Please read, and re-read the paragraphs above and below until it makes sense.

Deflation is the natural state of an economy when money is honest.  A dollar held is an investment in society.  You are leaving resources available for others to use, even though you could take them for yourself.  When you redeem your dollars in the future, it is normal to find that society has invested the value that you left unclaimed in improving production of useful things, and even to have invented new things.  Better production means that products are easier to produce, thus cheaper.

So, with honest money, like bitcoin, it is natural that one bitcoin should be able to purchase more value tomorrow than it does today.  We call this deflation, and it should be obvious that deflation is not a problem under that system, nor is the debt.

The problem with the dollar is that some people are able to produce new claims on wealth, without creating new wealth.  They are then able to acquire wealth, and at the same time diminish everyone else's stored claims to wealth.  This is called inflation.

The root problem is that the dollar is a political currency, meaning that imperfect people are in charge.  If we could round up some angels to run things, the dollar could be sound, even deflationary.  But angels are in short supply, so Satoshi decided to set a fixed generation curve.  As long as we keep it difficult for bitcoin to come under political control, we'll be OK.

[capoeira]

I'm talking about the real world aplication of your "system"
It could even work in a system constructed from 0, but what would happen with the real system? basicly all companys are fueld with debts. If I borrowed 100 BTC to buy machines and the machines cost 50 BTC when I pay it back, I made a big loss. and what a about demand that would lower a lot, since noone will buy things they don't realy need.

[vpsmmoforall]

how can any debt based economy survive a endless deflation? the problem is the system based on debt, not the inflation

There are levels of debt.

Money is debt.  This includes dollars, bitcoins, and even gold.  This is highly abstracted debt, not a call on any specific thing, or from any specific person.  Under barter, you trade value for value directly.  With money, you trade value for a claim on value, or money.  When you spend the money, you complete the barter that you had half-completed earlier.  Money is a token of debt from society in general, it represents that you have done something good for society, and that society has not yet done something good for you in return.

When people talk about how the dollar is debt based, they either mean this, and only this, or they are morons repeating catchphrases that they don't understand.  This is heavy shit, and it is possible to go decades with the fuzzy "money is debt" meme in your head, but without understanding what it really means.  I know, I was there.  Please read, and re-read the paragraphs above and below until it makes sense.

Deflation is the natural state of an economy when money is honest.  A dollar held is an investment in society.  You are leaving resources available for others to use, even though you could take them for yourself.  When you redeem your dollars in the future, it is normal to find that society has invested the value that you left unclaimed in improving production of useful things, and even to have invented new things.  Better production means that products are easier to produce, thus cheaper.

So, with honest money, like bitcoin, it is natural that one bitcoin should be able to purchase more value tomorrow than it does today.  We call this deflation, and it should be obvious that deflation is not a problem under that system, nor is the debt.

The problem with the dollar is that some people are able to produce new claims on wealth, without creating new wealth.  They are then able to acquire wealth, and at the same time diminish everyone else's stored claims to wealth.  This is called inflation.

The root problem is that the dollar is a political currency, meaning that imperfect people are in charge.  If we could round up some angels to run things, the dollar could be sound, even deflationary.  But angels are in short supply, so Satoshi decided to set a fixed generation curve.  As long as we keep it difficult for bitcoin to come under political control, we'll be OK.

i really agree with you.. Money is big debt .. depend on asset

[kjj]

I'm talking about the real world aplication of your "system"
It could even work in a system constructed from 0, but what would happen with the real system? basicly all companys are fueld with debts. If I borrowed 100 BTC to buy machines and the machines cost 50 BTC when I pay it back, I made a big loss. and what a about demand that would lower a lot, since noone will buy things they don't realy need.

Imagine the world 50 years from now.  Most BTC has already been generated.  Most worldwide commerce is using bitcoin.  The value of 1 BTC is about one decent, but small, office building, say close to 1 million dollars today.

Now think carefully and give me a scenario where 1 BTC can double in value in a reasonably short time.

Basically, what you describe couldn't work.  But it also couldn't happen, so there isn't much point in losing sleep over it.

[Erdogan]

Debt is money (in the sense that it's volume depresses the value of the currency unit, just like excessive printing of bank-notes), and money is also obviously money.

The powers that shouldn't be have supplied the world with money in the form of 1/10 banknotes and 9/10 debt.

It does not have to be like this, the reason being the absolute fact that pure money have no use-value whatsoever. So everybody could load up value in reserve in the form of money, there is no limit. House, car, dog, etc plus a corresponding wealth in money is possible, it is just as possible as having those things and no money, or those things with debt to the roof. For the real economy, the important thing is that you have the house and the car, that is resources that you use, which can not be used by others.

The number of units of account that you acquire thusly is of no relevance, it is the value that the money have. The volume of money existing in the world is always 1.

Don't listen to other people on this matter, it might confuse you.

Why the situation is like it is, drink some dominator under the table, and ask.

[dinofelis]

There are levels of debt.

Money is debt.  This includes dollars, bitcoins, and even gold. 

No, this is a fundamental misunderstanding.  Money is not debt.  Debt can be money.  But money is not debt.  It is true that most modern fiat money systems are debt-based money.  But that is not universal.

Money is an asset, that is speculatively tradable for useful assets, and can serve as intermediate exchange medium and store of value.

The trade-in of money is purely speculative.  Nobody goes to jail because your monetary asset didn't hold the value you speculated it was going to hold.

Debt, on the other hand, is the "second part of an exchange".  If I exchange 2 apples for an egg, and (first part) I give you 2 apples, then (second part) you OWE me an egg.  That's enforcible because we had a contract: you owe me an egg.  There's no speculation here, the agreement was an egg.

The liability "you owe me an egg" can become an asset by itself.  This is how written liabilities become assets, which can become monetary assets.  The value of a written debt liability is of the order of the value of the debt by itself.  This is how debt can become money.  But it is just ONE KIND of money.  Material assets are another kind of money.  In our modern monetary system, things become funny because the debt liabilities which become money, are often debts expressed in that money itself.   Modern fiat money systems are debt-based.  But not all monetary systems need to be debt based. 

Gold is not a debt.  Gold is an asset, a material asset.  Nobody is *required* to give you anything against gold.  If people do so, it is their free choice.  The monetary value of gold is speculative.  On the other hand, the liability "you owe me an egg" is not a matter of choice on your part, and can be enforced.  It is a debt.

You can base a monetary debt system on gold, but that doesn't make gold a debt.  You can "cover" issued money by gold.  In that case, the issued money is "covered" by gold, in that it is a liability of the issuer: he is liable to exchange physical gold for the issued money.  This is the origin of the fiat system of course.  The issued money is debt based in this case.  The gold itself not.  Gold is an asset.

[kjj]

There are levels of debt.

Money is debt.  This includes dollars, bitcoins, and even gold. 

No, this is a fundamental misunderstanding.  Money is not debt.  Debt can be money.  But money is not debt.  It is true that most modern fiat money systems are debt-based money.  But that is not universal.

Money is an asset, that is speculatively tradable for useful assets, and can serve as intermediate exchange medium and store of value.

The trade-in of money is purely speculative.  Nobody goes to jail because your monetary asset didn't hold the value you speculated it was going to hold.

Debt, on the other hand, is the "second part of an exchange".  If I exchange 2 apples for an egg, and (first part) I give you 2 apples, then (second part) you OWE me an egg.  That's enforcible because we had a contract: you owe me an egg.  There's no speculation here, the agreement was an egg.

The liability "you owe me an egg" can become an asset by itself.  This is how written liabilities become assets, which can become monetary assets.  The value of a written debt liability is of the order of the value of the debt by itself.  This is how debt can become money.  But it is just ONE KIND of money.  Material assets are another kind of money.  In our modern monetary system, things become funny because the debt liabilities which become money, are often debts expressed in that money itself.   Modern fiat money systems are debt-based.  But not all monetary systems need to be debt based. 

Gold is not a debt.  Gold is an asset, a material asset.  Nobody is *required* to give you anything against gold.  If people do so, it is their free choice.  The monetary value of gold is speculative.  On the other hand, the liability "you owe me an egg" is not a matter of choice on your part, and can be enforced.  It is a debt.

You can base a monetary debt system on gold, but that doesn't make gold a debt.  You can "cover" issued money by gold.  In that case, the issued money is "covered" by gold, in that it is a liability of the issuer: he is liable to exchange physical gold for the issued money.  This is the origin of the fiat system of course.  The issued money is debt based in this case.  The gold itself not.  Gold is an asset.

Before going into whether or not your system is "right", I note that it is not useful.  Basically, your argument reduces to defining itself.

In the sense of a platonic ideal, money is an abstract IOU.  It is useful only in the sense that it can be redeemed for something else.  In the real world, some (but not all) of the things we use as money have uses other than exchange.  For example, dollar bills can be burned for heat, light, or amusement, and gold has industrial uses.  Bitcoin is a closer approach to the ideal, since it doesn't really exist.

You could claim that since money isn't a claim on a specific thing, or from a specific person, that it doesn't qualify as debt.  But this is just a matter of definition, and not a universal one because plenty of people would draw that line in a slightly different place.  You can certainly choose to define debt in a narrow sense that excludes various categories of similar concepts, but what good does it do you?

By recognizing money as an abstract form debt, you are able to quickly purge from your mind all sorts of silliness.  It is a more useful way of thinking about things.

Now in the broadest sense, an "asset" is merely something useful, which can be "useful for use" or "useful for exchange".  This obviously includes goods, money, in any form, and debt, again, in any form.  Saying that money is an asset isn't an argument for or against including it in the category of debt.

And debt most certainly is speculative.  If it wasn't, why would something like FICO exist?

All of this applies to gold too.  That gold is a physical thing does not change anything.  You get it by doing something useful for someone else, and you expect to be able to trade it later for something useful to you.

[dinofelis]

You could claim that since money isn't a claim on a specific thing, or from a specific person, that it doesn't qualify as debt.  But this is just a matter of definition, and not a universal one because plenty of people would draw that line in a slightly different place.  You can certainly choose to define debt in a narrow sense that excludes various categories of similar concepts, but what good does it do you?

If you have a hammer, that is not debt.  If you have bread, that is not debt.  If you have a car, that is not a debt.  If you have a knife, that is not debt.  If you own a book, that is not debt. If you have a can of milk, that is not debt.  If you have wood, that is not debt. If you own petrol, that is not debt.  It is *ownership of an asset*.

Monetary assets, whether they also have a direct use (dollar bills to burn them, gold to make juwelry or to use industrially, like petrol, wood, milk...) or not (bitcoins), are just assets you OWN.  They are not debt.  Nobody can be forced to give you anything, or work for you, because you are the owner of a piece of wood, a piece of gold, a bitcoin, or some milk.  Nobody is liable to anything to you because you own a car.

However, if you have a debt asset (if you have lend your car to someone, and you have a piece of paper where that person engages himself to give you that car back, plus some petrol), then that person is liable, has a debt, and if you OWN that debt, then that asset can also be "money".  So debt is a specific kind of asset, and yes, it can ALSO be money.

If you have a government bond, then the government owes you stuff, and that bond, which is a debt of the government, can also be money.  It is an asset which is a debt, and being an asset, it can be traded for other stuff, and hence become money.

But money is not debt per se, and most of the time, it isn't.

By recognizing money as an abstract form debt, you are able to quickly purge from your mind all sorts of silliness.  It is a more useful way of thinking about things.

You should read Rothbard: http://mises.org/sites/default/files/What%20Has%20Government%20Done%20to%20Our%20Money_3.pdf

Now in the broadest sense, an "asset" is merely something useful, which can be "useful for use" or "useful for exchange".  This obviously includes goods, money, in any form, and debt, again, in any form.  Saying that money is an asset isn't an argument for or against including it in the category of debt.

No, debt means that somebody is liable.  That he has engaged himself in doing something or giving something.  Otherwise the word "debt" only means "property" or "asset".

If you have a debt, then you are not free to do as you please. 
If you are holding a debt liability of someone else, then that person is supposed to act, and can be enforced to do so, unless the debt is really beyond his capability.

If you took a loan at a bank, then you are not free to decide not to reimburse it.  It can be that you are broke.  But the bank will first take all you have (or most of what you have).  You have no choice.  THAT is a debt.

If I have gold, then that gold is not a liability to anyone.  Nobody can be FORCED to do anything for that gold.  Most people will CHOOSE to do so.  But they are free.  They could also choose to do something to get my car.  But my car is not a liability either.

[kjj]

Do you really not see that you are just going around in a circle?

It is not interesting to me if you choose to draw a line that divides some debt-like things from some other debt-like things.