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Author Topic: Is deflation a solution for many world problems? Is bitcoins just the start?  (Read 1494 times)
zemario
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March 31, 2013, 09:36:39 AM
 #1

I guess this is been discussed many times, but maybe not with this exact focus.

I red some article of some 'economy expert' saying that bitcoin will fail because deflation gives people an incentive to save and store value instead of spending. Without an incentive to spend the economy would generally slow down.
Now, using the word 'economy' like this is an abuse in the sense that economy is not a synonym for "total amount of transactions".

Being born and raised in the country, one thing that puzzles me now that I live in a first world capital, is how pointless consumption became. In order for a business to become successful, it is necessary in the first place that it generates a big amount of transactions. There is no value in something that built with proper quality and will last for long periods of time with little or no maintenance.

Furniture, electronics, clothes, all these went from being medium term investments to almost disposable goods, and indeed this trend is moving forward. The current economical model forces production parties to keep making profit instead of just making profit.
This is fundamentally different.

Basically, deflation would enable people to hold on to whatever value they managed to collect through their work. I think it could lead to a much better sense of what 'need' really means. If the productive machine does add real value ten the currency would deflate naturally, so there wouldn't be much of a problem of people being tight to it as they would be holding more value in their pockets anyway (because of deflation).

Does this makes sense? Does it have any major flaw?

This would force a huge paradigm shift, and obviously established power would offer resistance to change. Hoever, bitcoin is proving that it is possible for the masses to push change from underneath. Can such changes be pushed to the extent of changing the core of world economics?
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March 31, 2013, 10:06:36 AM
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In as few words as possible, it is precisely like that.
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March 31, 2013, 10:51:28 AM
 #3

What you are saying makes me think about how I watched the Zeitgeist movies and generally liked their analysis of the current fiat-based monetary system, but was very distrustful of their vision of a moneyless "resource-based economy". It seemed a too centralized approach for my taste. Where I found myself nodding in agreement was when they described the current system as implicitly based on the need of infinite growth and how absurd that is on the face of it and how many bad effects it produces for the society within such a system.

Anyways I definitely agree that Bitcoin could facilitate a change from the current growth-oriented model of managing economies to a sustainability-oriented model of...letting the economies grow. Because once economies are free from centralized monetary control, the are free to grow any way they need to. Which includes staying the same size or shrinking, options not exactly encouraged by the current system.

Whenever I see some guy in a suit on TV denouncing the evils of deflation because it makes people spend less I interpret it just as the dominant propaganda of the day, supporting the growth-based system. Corporations and governments using media to stay in control and profit from the system - nothing unexpected. But just how stupid do those people think their edumakation system can make us? Consuming less than you produce is bad for you and the community? Really? Cheesy


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April 01, 2013, 03:47:26 AM
 #4

I guess this is been discussed many times, but maybe not with this exact focus.

I red some article of some 'economy expert' saying that bitcoin will fail because deflation gives people an incentive to save and store value instead of spending. Without an incentive to spend the economy would generally slow down.
Now, using the word 'economy' like this is an abuse in the sense that economy is not a synonym for "total amount of transactions".

Being born and raised in the country, one thing that puzzles me now that I live in a first world capital, is how pointless consumption became. In order for a business to become successful, it is necessary in the first place that it generates a big amount of transactions. There is no value in something that built with proper quality and will last for long periods of time with little or no maintenance.

Furniture, electronics, clothes, all these went from being medium term investments to almost disposable goods, and indeed this trend is moving forward. The current economical model forces production parties to keep making profit instead of just making profit.
This is fundamentally different.

Basically, deflation would enable people to hold on to whatever value they managed to collect through their work. I think it could lead to a much better sense of what 'need' really means. If the productive machine does add real value ten the currency would deflate naturally, so there wouldn't be much of a problem of people being tight to it as they would be holding more value in their pockets anyway (because of deflation).

Does this makes sense? Does it have any major flaw?

This would force a huge paradigm shift, and obviously established power would offer resistance to change. Hoever, bitcoin is proving that it is possible for the masses to push change from underneath. Can such changes be pushed to the extent of changing the core of world economics?

Spot on!  This has long been my thinking, as well.  The world's current financial system is debt based (especially the U.S. who happens to have the reserve currency) and inflation is only necessary because constant growth of nominal dollars is needed to keep the accrued debt of the past at bay.    Inflation makes older dollars worth less, enabling newer dollars (created in more quanitity) to pay off the old debt.  It's basically a giant ponzi scheme and the moment that the nominal growth stops and the value increases (deflation), the music stops and the system crashes.  That's why they've kept interest rates so low for so long because it fosters creation of new debt and keeps everything running. 
Inflation only benefits the group that creates the debt (government/banking system).  Deflation hurts them, therefore all the propaganda against deflation. 
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April 01, 2013, 12:10:43 PM
 #5

A logical, rational currency system would be based on economic growth.  If an economy is growing then the currency base should expand at that rate, plus a percent or two on top to encourage further growth.  Problem is it's never going to happen as people can't decide what economic growth even is half the time.  The Broken Windows Fallacy is a good example.  Whenever a natural disaster hits the media starts talking about economic cost, but then the economic benefit of repairing damage.  There is no benefit: they're replacing what they already had.

Deflation does encourage hoarding but it's not always an impediment to growth.  The PC you and I are using right now will be half price in year's time, yet we still bought one.

I'm not sure if bitcoin's model of deflation is the right one.  If a bitcoin is destroyed it's gone forever.  It cannot be replaced.  It will be very interesting to see if bitcoin takes off, and if millions go missing through hard drive crashes, computer theft, forgetfullness, etc.  It's a good thing only for the early adopters as the apparent value of the remaining bitcoins goes up.  That makes everyone else wary that bitcoin is a pyramid scam.
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April 01, 2013, 04:21:20 PM
 #6

OP is 100% right IMHO

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April 01, 2013, 05:42:22 PM
 #7

I made this connection just the other day Grin You're absolutely right OP. The west is centered around producing as much crap (and crap is the correct word here) as possible to keep their nations afloat. We're long overdue for a change.

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April 01, 2013, 05:49:21 PM
 #8

Anyone worried about global warming, pollution, peak oil, or anything like that should be in favor of transitioning to a deflationary currency (doesn't need to be specifically bitcoin). Anything else is logically inconsistent.
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April 01, 2013, 08:24:10 PM
 #9

...or the abolishment of any "official" currency.

And all kinds of exchange systems people use would naturally reflect the potential of their economy, without any direction being enforced top-down.

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April 03, 2013, 12:47:02 AM
 #10

@ zemario
Bang on there are many treads discussing this, I recall "Woodcoin" being trademarked in one of them.   

One other aspect which you didn't highlight is: Investment or corporate investing.

With inflation it is wise to invest ( mal-invest) your money in capital infrastructure like Alberta oil sands,
1) if you save your money it will be worth less in the future. 
2) the capital investment costs less today than it does in the future so invest mow while it is better value.
3) you will have a revenue producing asset in the future that is inflation resistant.

As opposed to:

With Deflation it is wise to save your money, and "Invest" in businesses that provide a return greater than deflation - this is investment coupled to sustainable growth.
1) you are discouraged from investing when the economy is booming, and encouraged when it retracts (inflation should naturally be a sign of scarcity)   
2) your capital investment will be more cost effective in the future, meaning subsisting on the bare minimum now will reword your with abundance later - balancing greed
3) you won't need to over consume and pollute to subsist as deflation will sustain you and allow you creative time and space to innovate more before investing.

so it is all good,
my "but" is, can bitcoin be distributed to allow this?

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