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Author Topic: Why does inflation happen?  (Read 4947 times)
johnyj
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March 30, 2013, 01:18:20 AM
 #21

This may be economics 101, just wanting to check my facts on the phenomenon...

Does inflation, in case of dollars for example, simply come from the fact that the government introduces more money into the system, which causes the value of existing dollar? Or are there other factors in play?

How about banks creating money out of thin air, does it have any role in inflation? (As I understand it, they invent money that they loan  to customers, expecting an interest - correct me if I'm wrong!)


It has almost no direct relation with banks creating more money. The root cause is supply and demand, and that in turn is decided by many other factors

For example, after financial crisis, FED created 3 times more money, have you seen the CPI rise by 300%?

Another example, banks print one billion dollar and give it to you, as long as you guarantee that you don't increase your consumption in anything listed in CPI index, there will be no inflation, you can buy gold, buy stocks, buy bitcoin, all these won't cause inflation


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March 30, 2013, 05:22:09 AM
 #22


For example, after financial crisis, FED created 3 times more money, have you seen the CPI rise by 300%? , a

Sure there are lots of masks, 100 years ago you labour sustained a moderate life, with technological advance today only 2% of you're labour would sustain the same lifestyle. Today we work longe than we did back then not less that is because the benefits technologies have provided have gone to inflation.

The CPI isn't the best measure it evolves to tell a story that suite economists in charge. Even looking at the CPI you'll see $1 a 100 years ago has the purchasing power of $94 today (news flash Bitcoin hits parity with the Dollar from 100 years ago.)

To your point QE of 300% will take years to effect inflation it isn't instant, moreover it is money available to the banks and they are investing in stocks and other activities which ultimately is a mal investment that will cause an economic correction.

So a need for Bitcoin is born.

Thank me in Bits 12MwnzxtprG2mHm3rKdgi7NmJKCypsMMQw
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March 30, 2013, 05:58:49 AM
 #23

Does a currency with low (or nonexistent) inflation cause the economy to wind down, causing a depression? As that's what everybody seems to be fearing with traditional economies.


A deflationary spiritual is an oxymoron it is a keynesian economic idea - Google  "the paradox of thrift" if these arguments convince you, you may not see why we need Bitcoin. (ironically the paradox of thrift idea is applicable to the growth of the Bitcoin economy)

Ultimately the net results of managing an economy through monetary policy is inflation. Inflation is the oil that keeps the machine running, and if used in moderation and for the good of the people it is thought by Keynesians to be a necessary good.


The down side of inflation is economic growth, Unsustainable perpetual growth in a finite world, in Austrian terms this growth is considered a malinvestment of resources. It is logically and theoretically possible that a free market is the most efficient way manage growth in a finite system.

until Bitcoin the free market has been manipulated and managed through monetarism.

the deflation people try to avoid is the hangover from over consuming the plant, if we avoid it we'll become alcohols living in a gutter.

Bitcoin makes possible a paradigm shift, for me finding the answer to "why would anyone think 1BTC is worth $1? has radicaly changed my political environmental and economic understanding.

Thank me in Bits 12MwnzxtprG2mHm3rKdgi7NmJKCypsMMQw
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March 30, 2013, 06:47:42 AM
 #24

I sense a great argument: Bitcoin as planet saver  Tongue with an economy in better balance, there will be less wasted.

Of course, something useful should be done with the hashing heath.

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notme
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March 30, 2013, 09:03:45 AM
 #25

Regarding M*V=P*Q:

Everyone always says to assume V is constant, but that is a mistake.  V is very much higher in a growing economy than in a depression.  When things get tough, people save more and spend less.  While M has been dramatically increased, the argument goes that this is just an attempt to counteract a falling V.  Unfortunately, this doesn't help since the money never actually makes it to the consumer.  The only way they can get it is to borrow it.  While interest rates are low, people are still being conservative with their money and are unwilling to take out debt for things they don't absolutely need.

By printing more money (increasing M), which is only sitting on bank balance sheets, they are actually driving V further down since V is (total value of all transactions)/M.

If they are able to get things moving again, V will skyrocket and they will have to contract M to keep things in check.  Since unprinting money is much harder to do, there is a real risk of hyperinflation if V grows too quickly.  In fact, the safest route out of this mess might be long term deflation like Japan has experienced since the 80s.  In such a scenario, V will stay low and printing will go primarily to servicing debt.  However, using the printed money to reduce government debt will never happen as long as the private banking cartels have first dibs.

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March 30, 2013, 11:23:33 AM
 #26

Quote
In fact, the safest route out of this mess might be long term deflation like Japan has experienced since the 80s.
No. Smiley
Japan can do this trick only because
they borrow from their own savers (and with
 very low %%).
These savings are about to tapped out.
Also, this is a corner case :
every other country will have to borrow
 for at least 3%/year ( for longterm bonds)
, and therefore can't go japanese route.
 

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March 30, 2013, 06:16:19 PM
 #27

Quote
In fact, the safest route out of this mess might be long term deflation like Japan has experienced since the 80s.
No. Smiley
Japan can do this trick only because
they borrow from their own savers (and with
 very low %%).
These savings are about to tapped out.
Also, this is a corner case :
every other country will have to borrow
 for at least 3%/year ( for longterm bonds)
, and therefore can't go japanese route.
 


I didn't mean "exactly" like, I meant similar.  It would work if the FED was extinguishing debt with the printed money, but they are not and will not for the reasons I already mentioned.

https://www.bitcoin.org/bitcoin.pdf
While no idea is perfect, some ideas are useful.
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