Economists have it dead wrong... bitcoin will cause inflation

[notig]

    What happens when person A wants bitcoins and buys them from person B with dollars? The dollars transfer to person B. They don't disappear. There is no decrease or increase in the amount of dollars in the economy. They simply change hands. You can't possibly know if person A wants bitcoins so they can spend them or save them. And you can't possibly know if person B is selling his bitcoins to use that money for saving such as buying gold.. or if they want to spend them. But if someone spends bitcoins and consumes goods and services from the economy then the supply of goods and services is slightly reduced meaning the same amount of dollars are chasing less goods and services.

    Of course you may be wondering.... if economists claim that deflation is bad for the economy then how is this possible? Essentially economists are automatically wrong because they don't comprehend reality. In reality... there isn't just a deflationary currency (bitcoin). There are dollars and now there are dollars and bitcoins. So how bitcoins will impact the economy (even though bitcoins themselves are deflationary) will most likely be to contribute some small amount of inflation. Will the dollar die and the bitcoin replace it? No because we are forced to use dollars. Government is force. Laws are force. You are forced to accept dollars so by definition as long as there is government there are dollars.

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[benjamindees]

Yes, Dollar inflation.  Inflation occurs when there are more dollars.  It can also occur when there are fewer assets.  Bitcoin takes assets out of the dollar economy, causing dollar inflation.

[edmundedgar]

Or to put the original point another way, while Keynesian economists were fruitlessly attempting to persuade the government to print money and drop it out of helicopters, we made up a billion dollars and gave them to ourselves.

[No_2]

Very interesting point notig.

[n8rwJeTt8TrrLKPa55eU]

Or to put the original point another way, while Keynesian economists were fruitlessly attempting to persuade the government to print money and drop it out of helicopters, we made up a billion dollars and gave them to ourselves.

Beautiful insight.

[BitcoinAshley]

Yeah, the arguments in favor of bitcoin being a bubble have been reduced to "bitcoin is a bubble cuz... deflation. Deflation is bad cuz... hoarding. Inflation is good cuz... Paul Krugman said so."

So let's step out of Paul Krugman's keynesian wet dream for a second. 

"Deflation is bad" rests on "cuz... hoarding." In the bitcoin economy this has proven to be absolutely not true. Bitcoin functions as a deflationary store of value AND as a currency. People hoard, people trade for goods/services, and most people do a little of both. Why is this Krugman fantasy of "People won't spend something that will be worth more in the future" parroted as a truism? Have we actually examined it? People will spend something, even if it will be worth more in the future, if their need for goods in the present surpasses the perceived future benefit of holding onto said coins. People need food, water, new external hard drive, web hosting, etc.
But there are those that would have you believe that everyone will simply forgo purchasing food, water, shelter, basic essentials, even computers, services, cars - just because their currency will be worth more in the future.

I've bought things with bitcoins when they were $13, $20, $50, $70, $130 and I don't regret any of those purchases because they were all things that I wished to buy at that moment. It's silly to assume that people just won't buy stuff because their currency is increasing in value. Now, it does discourage rampant, extreme runaway levels of consumption that are unsustainable and lead to corruption/banking system collapse/etc. Maybe that's why the krugmanites don't like it ;-)

The first thing I do when bitcoin hits $500 is buy a brand spankin' new laptop. Knowing that it's probably going to keep going up to $1000 and $10,000 - I'll still do it. And the vastly increasing number of bitpay merchants and transactions for goods paid in bitcoin is solid proof that these "lol deflation meanz bubble" folks are dead wrong.

[nimda]

If people will always hoard deflationary currency and wait for cheaper prices, they will do so with the dollar, too.
The cost of computer components and cell phones are, on average, dropping all the time.
Therefore, nobody will buy computer components or cell phones with the dollar.

Or:
Those who do not produce, find, or purchase food will starve to death.
Therefore, in a society with nothing but deflationary currency, people will either grow/find all their food, or they will purchase it.
Deflation simply discourages unnecessary purchases.

Or:
The anti-deflation argument posits that nobody will purchase goods when the goods will be worth less money later on.
Why do merchants accept U.S. dollars when they will be worth less later on?
To rephrase, why would you sell your chair for $90 today when you could sell it for $100 next year, if you wouldn't buy a couch for 100 BTC today when it will be worth 90 BTC next year?

[joulesbeef]

it isnt that people wont buy.. it is pressures. The world isnt black and white or off and on.

and yall even suggest you know this to be true.

People will spend something, even if it will be worth more in the future, if their need for goods in the present surpasses the perceived future benefit of holding onto said coins.

right, and what is it like in an inflationary market, where your dollars are worth less in the future.. how does that equation above(and yes it is one) change.

as for computers and cell phones.. first you have to look at the rates of deflation. SHow me a single solitary computer device, that was cost 1/3 of what it cost one month ago. There are pressures to not buy and wait, but you have to look at the rates of deflation and then go back up to that equation I quoted. If computers went down by 66% a month, no one would buy their kids a school computer until the first month of school.


you cant compare the price deflation of computers and cell phones with the massive price inflation we have seen with BTC.

Not disagreeing with all yalls points, but come on, there is a huge difference between the spikes we have seen and normal price deflation in the markets that happen in scales of years. Thats like saying just cause I poured a cup of water on your head and nothing bad happened, that I can dump 50,000 gallons on your head and you will be ok as well.
 

[Jobe7]

OP,

The 'change' comes when people buy commodities for btc that they would normally use fiat for. Once that is done then it permenantely transfers fiat to btc.

Example: I sell btc for fiat, I now have lots of fiat, I buy a computer/car/house/etc with that fiat, I decide to sell my item, I sell the item for btc.

For the person who brought the btc - I change fiat to btc, I have btc, a few days later I buy a cuppa tea and a slice of pizza, I consume these.


Now .. where in your calculations are the fiat?

And to further explain what is happening (what quite a lot miss) -

1. I change £10,000 into btc.
2. 2 months later I spend all my btc, which is now worth £20,000, on lots of fiat items.
3. When I want to, I sell those items for btc (because if I sell for fiat I know that fiat will be worth even less in a months time).

How much have I just taken out of the fiat system? With only £10,000.

edit: this cycle can continue until most of the worlds wealth is in btc, or until 2030.

The allure is that what I've just written, increased value of your money/btc over time, which draws people and (hopefully) shows people the wisdom of re-selling for btc and of using that btc.

[Snowfire]

If you buy goods and services for BTC, you are indeed withdrawing an increment of supply. But you are also withdrawing an increment of demand (i.e. you did not purchase the same items with conventional money.) So there is no net inflationary effect.

[nimda]

you cant compare the price deflation of computers and cell phones with the massive price inflation we have seen with BTC.

Not disagreeing with all yalls points, but come on, there is a huge difference between the spikes we have seen and normal price deflation in the markets that happen in scales of years. Thats like saying just cause I poured a cup of water on your head and nothing bad happened, that I can dump 50,000 gallons on your head and you will be ok as well.
 

Bitcoin's current level of deflation is temporary. You can't have 1% annual deflation with this amount of new money entering the market. Eventually, though, the new money stream will dry up and we will reach a healthy deflationary market.

[TraderTimm]

Economists have a sweet gig. They can be as wrong as they like, as often as they'd like - and they still get paid. If they were predicting the weather they'd be run out of town.

Economists engage in psuedo-science quackery backed by impressive looking formulas that mean jack squat. Bernanke, a celebrated economist, missed the housing market bubble, among other things. If you can't extract from the data the impending doom amounting to trillions, what business do you have saying you've got anything 'nailed down' when it comes to predictions?

They're just as bad as Jim Cramer when he told everyone Bear Stearns was 'fine'.

[notig]

you cant compare the price deflation of computers and cell phones with the massive price inflation we have seen with BTC.

Not disagreeing with all yalls points, but come on, there is a huge difference between the spikes we have seen and normal price deflation in the markets that happen in scales of years. Thats like saying just cause I poured a cup of water on your head and nothing bad happened, that I can dump 50,000 gallons on your head and you will be ok as well.
 

Bitcoin's current level of deflation is temporary. You can't have 1% annual deflation with this amount of new money entering the market. Eventually, though, the new money stream will dry up and we will reach a healthy deflationary market.

I'd have to agree. Even the dollar would have massive swings in value if the proportion of people using it was changing at a rate such as the userbase of bitcoin is changing.