Price stability is price control

[grondilu]

The prominent objective of most central banks is price stability.   I think this is wrong, just as wrong as price control is.

Sure, price stability for any entrepreneur is convenient and desirable.  It's very much necessary in order to plan for the future, decide wages, choose investments and so on.

But the very point of a price is to vary in order to transmit economic information.   If the prices are stable, it is supposed to mean that the economy is stable.  Now look at the world around you and tell me:  does the economy look stable to you?

I understand that price stability is something people can desire.   But so is nice weather.    And yet everybody knows that we need crapy weather and most importantly rain from times to times.   Prices are not supposed to be something we control, like in some communist country.   Price is something that is supposed to tell us something about the state of the economy.

When the price of all things increases, it is supposed to mean that for some reason the economy is not doing very well:  producers have difficulties responding to the demand.  As a consequence, people start to save things, to consume less.  They spare means of production and reduce their demand.  Also, entrepreneur think harder on how to increase production.   This reaction provides a negative feedback which tends to counter the price increase:  the system then tends towards equilibrium.

When the price of all things decreases, it is supposed to mean that for some reason the economy is doing fine:  producers are easily capable of meeting demand.  Stuff are easy to make.   Or it just mean that people don't need what producer are producing anymore.  Then factories hire less and that can lead to unemployment.  But that is economic reality:  there would be no point hiring someone if it is to produce something that people don't want.

Anyway, my point being:  prices are an economic indicator.  Messing with money supply in order to artificially make this indicator stable in time is very wrong, if you ask me.

[antimattercrusader]

+1

[justusranvier]

Prices change because of supply and demand. No one can directly control demand, so the only tool a central authority can use to control price is to change the supply of money.

In order to increase the supply they counterfeit.
In order to reduce the supply they steal it.

That's what price stability means: theft and counterfeiting.

[grondilu]

Prices change because of supply and demand. No one can directly control demand, so the only tool a central authority can use to control price is to change the supply of money.

In order to increase the supply they counterfeit.
In order to reduce the supply they steal it.

That's what price stability means: theft and counterfeiting.

Nice summary 

[Mike Christ]

Good points   Here's hoping BTC gains some more footing with businesses and becomes less volatile.  Heck, the dollar had it easy; get the whole nation on board and it becomes a lot more stable.  If BTC gains that kind of stability, it's smooth sailing.

Well, so I hope.  Wouldn't mind it if BTC would just steadily rise in value over the years, not over a few weeks

[myrkul]

So, we should celebrate this volatility as the freedom it is?

[grondilu]

So, we should celebrate this volatility as the freedom it is?

It did reflect economic information, from the Cyprus crisis to the fragility of the bitcoin exchange markets.

[justusranvier]

So, we should celebrate this volatility as the freedom it is?

The cause of the volatility is the artificial restrictions in the legacy banking system that limit how quickly fiat can get into the exchanges. The last 48 hours have been full of people desperate to deposit funds in an action that would otherwise reduce the downside, but can't do it quickly because of all the roadblocks in the way. The existing companies in this space can't handle the demand, and competition is limited because of the high barriers to entry.

Also the largest exchange is fundamentally broken. That doesn't help matters either.

[pretendo]

Price stability natural occurs with rational expectations.

Bitcoin is a disruptive technology at the very earliest stages of growth. The future is risky and uncertain. You see the same thing with disruptive, new, penny growth stocks. Do they need to be stablized? Nope! But you could either make a 10,000% ROI or lose every cent invested.

Once bitcoin matures, stability naturally comes. For now, deal with it or leave the game

[myrkul]

So, we should celebrate this volatility as the freedom it is?

The cause of the volatility is the artificial restrictions in the legacy banking system that limit how quickly fiat can get into the exchanges. The last 48 hours have been full of people desperate to deposit funds in an action that would otherwise reduce the downside, but can't do it quickly because of all the roadblocks in the way. The existing companies in this space can't handle the demand, and competition is limited because of the high barriers to entry.

Also the largest exchange is fundamentally broken. That doesn't help matters either.

People literally can't buy coins fast enough. 

[minerva]

Prices change because of supply and demand. No one can directly control demand, so the only tool a central authority can use to control price is to change the supply of money.

In order to increase the supply they counterfeit.
In order to reduce the supply they steal it.

That's what price stability means: theft and counterfeiting.

Funnily enough, the gold standard is price control. Only fiat currencies, which are not subject to central banking, are truly free market.

[Mike Christ]

Prices change because of supply and demand. No one can directly control demand, so the only tool a central authority can use to control price is to change the supply of money.

In order to increase the supply they counterfeit.
In order to reduce the supply they steal it.

That's what price stability means: theft and counterfeiting.

Funnily enough, the gold standard is price control. Only fiat currencies, which are not subject to central banking, are truly free market.

Fiat seems to be in pretty strict control in how much it's worth (that is, less and less based on how much exists.)

[Twerka]

Funnily enough, the gold standard is price control. Only fiat currencies, which are not subject to central banking, are truly free market.

You can have a free market based on an economy based on rocks of different sizes.
The type of market is not related to the kind of money used.

But, in highschools of USA they teach that fiat is good for free market, then you see a lot of people believes it.

[Mike Christ]

But, in highschools of USA they teach that fiat is good for free market, then you see a lot of people believes it.

I remember this.

Argh!  Propaganda!  The plague of state-owned schools; they'll teach you whatever they approve, and nothing else.

[Adrian-x]

I couldn't agree more, I'd add educating one's self sometimes is an expensive process.

Fortunately my I have learned at no cost that tools to increase liquidity without addressing the fundamentals of reliability are futile.

and While I enjoyed MtGox as the go to for a price leader, it was wrong and inaccurate. A distributed free market is more free than one that has 80% of its freedom in controls of some one else.