Bitcoin. In no way deflationary.

[Spendulus]

Can we just agree that EVERYONE Austrian or Keynesian expects the exchange rate for real goods and services against BTC will rise and BTC's will buy more in the future.  All you Austrians have been arguing that will happen, have been advocating people hoard coins in anticipation of future consumption higher then the consumption deferred to buy and hoard the coins and so far (outside of some crashes) your prediction has been correct, BTC appreciated massively.

Now if a Keynesian when using the term 'deflation' means that price appreciation then by golly they are correctly describing BTC by what that word means to THEM.  If someone else with this weird idea that these words mean only nominal changes in money supply says BTC is inflating then yes they are also right by what that word means to them.  All we have here is a disagreement over what words mean, not the nature of BTC which everyone agrees on undeniable fact, that of growing supply and appreciation in value.

Now I'm going to argue that the so called 'Keynsian' (really everyone excluding a few wackos) definition of inflation/deflation is correct.  Why because it actually MEANS something to an economy and an individual, where as the nominal money supply tells us nothing about an economy or what to do as an individual.  Real inflation is an incentive to spend, real deflation is an incentive to save, BTC clearly falls under that latter kind of incentive structure (the Austrian and Keynsian would now have an actual disagreement over if this is good or bad).  If I make a statement about nominal money supply while ignoring the population of users, the quantity of production and the demand for consumption of those users I've ignored so many CRITICAL factors that I no longer say anything meaningful about the signals being sent, are individuals under an incentive to spend or to save, I haven't said one way or the other unless I make the assumption that ALL the other factors are constant which this narrow definition explicitly excludes if it mean ONLY nominal money supply.

And you know who else agrees with Mr. Keynes on this definition, VON MISES, quoted directly from Theory of Money and Credit, at http://archive.mises.org/19306/inflation-and-deflation-austrian-definitions/

an increase in the quantity of money (in the broader sense of the term, so as to include fiduciary media as well), that is not offset by a corresponding increase in the need for money (again in the broader sense of the term), so that a fall in the objective exchange-value of money must occur.

Well said, let me only add one thing. 

Modern "Keynesian economics" is NOT the economics of Keynes.

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[BTConomist]

And how exactly do you see this happening when hoarding seems to be everyone's favorite pastime? As you can see, lost coins don't drive BTC's deflation... No spending = no deflation.

No spending doesn't mean no deflation. Besides, if the only thing that's being traded is USD for BTC, that's still spending.

To tell you the truth, your statement caught me off-guard for quite some time.  Nevertheless, after a few sips of some fine cuban rum and a wisdom spark, I think I may have found just the right words to clarify my initial position. So, here it goes. Ready? Let us first agree on the following play of words... If trading USD for BTC can be considered buying BTC, then trading BTC for USD will be considered buying USD. Does this sounds about right? So, if by buying BTC you would be engaged in demand creation for BTC, then by buying USD you would be engaged in demand creation for USD... But where is the value creation in that?

By trading one currency (say BTC) for another (say USD) you are merely engaging in the transfer of some assumed value between those currencies, and nothing more. Now, if the underlying value (not to be confused with the exchange rates) of each such currency has not changed between the two back and forth transfers, then both transfers would simply cancel each other out. But if one currency's underlying value (BTC's) was suddenly projected to increase relative to another currency (USD's), then the exchange rate between the two currencies would eventually self-adjust (due to some market forces) to reflect that projection. And we all know what would happen then: you would receive back less BTC for every USD than what you had initially used to buy those USDs (when you initially transferred some assumed value from BTC to USD).

Hopefully these badly-structured sentences were somewhat helpful in shining some light on why the increase in the underlying value of a currency is derived from the assumptions/projections about the increase in economic activity, rather than the increase in trading activity (i.e. back and forth buying/selling BTCs for USDs). Unfortunately, the only way to increase economic activity in a market-driven economy is to increase consumption of products/services produced in that economy — this is what I call the increase in spending. And when it comes to BTC-based economics, deflation is just a pretentious way of saying inflation.

[drhobomanxxiii]

No one denies that the supply of money is a FACTOR that can contribute to inflation/deflation, and yes how new money is added (or old money removed) has massive effects and has to go through a messy process of rippling through the economy to rediscover new equilibrium points (and some people get screwed in this process).  None of that is even remotely in dispute, you seem to be assuming I support inflation simply because I don't spit on Keynes grave every time I mention him as is the normal etiquette here on the forums.

I am simply arguing that deflation/inflation as terms describing the change in the purchasing power of money are useful and meaningful and the orthodox meaning of these words amongst ALL economists.  The deeper ramifications, goodness badness, supply vs demand side mumbo-jumbo is irreverent here because I'm just trying to point out that semantically their is no disagreement.

My point wasn't that you're arguing for or against inflation, but in regards to the use of terms, inflation and deflation are actually quite good for both price and supply issues. This is why I personally just say "price inflation" or "deflation of the supply of X" because it tends to get over this semantic hurdle with most people while still applying the ideas of inflation and deflation to both spheres.

And I have no idea what your lost wallet statement is supposed to mean as that's not inflationary by anyone's book, losing a crytpo coin wallet decreases money supply and all things being equal will cause deflation if it is not being offset by an equivalent decline in demand for money.  Mises and Keynes agree on this simple point.

This is why I said that it's exactly the opposite of the inflationary mechanism. The point was that the first person to lose the currency is the worst off while the last ones to adjust (rather, to be forced to adjust) to that pricing shift are the best off. It was just inverting the issue to try to make the point about the necessity of qualitative analysis rather than looking at the aggregates of price inflation and deflation.

Hopefully these badly-structured sentences were somewhat helpful in shining some light on why the increase in the underlying value of a currency is derived from the assumptions/projections about the increase in economic activity, rather than the increase in trading activity (i.e. back and forth buying/selling BTCs for USDs). Unfortunately, the only way to increase economic activity in a market-driven economy is to increase consumption of products/services produced in that economy — this is what I call the increase in spending. And when it comes to BTC-based economics, deflation is just a pretentious way of saying inflation.

If you're trying to relate Bitcoin deflation to the relative inflation of the Dollar against Bitcoin, then sure...... But that doesn't really make a meaningful point above and beyond saying that Bitcoin has deflated relative to the Dollar...

I'm not really sure where you're going with all of that. In terms of spending more in an economy, if the size of the market of goods being bought using the currency increases at a faster rate than the reduction in hording, then price deflation will occur even as the supply of currency being circulated is inflated... But that's completely relative... So again, I'm not really sure where you're going with all of this.

[MPOE-PR]

100 bitcoins says MPOE-PR is shorter than 5'7
who's in?

Me. I'm picking MNW as an escrow, ready to go?

You surmise wrongly. That's unsurprising.

You're at least very closely related to the person who did write it, if any of the connections that your account has with the supposed author are accurate.

Let's make a simple mental experiment. We both sit down at a table in your favourite fast-food-joint-masquerading-as-an-eatery. I wouldn't eat there more than I'd eat at the gas station, but you're you. I place in front of you a complete menu of whatever they have on tap and a note, which says "Redeemable tomorrow for two complete menus". You get to pick one, and just one. Either the note or the "food". So what do you do ? Do you eat the shit or wait till tomorrow ? Depends on how hungry you are, right ?

Tomorrow comes, and here we are again : me stuck nine feet under the biofilm, disgustedly mingling with the lower classes and you in your natural element. I place in front of you two complete menus of their crap, and two notes. Each note says, "Redeemable tomorrow for two complete menus". Do you eat the shit or wait another day ?

One thing's for sure : you will not be waiting forever.

How is this not about "the question at hand"? Deflation does not prevent spending. Deflation simply prevents misallocation of resources.

The issue isn't about deflation preventing spending. You're putting the cart before the horse here. The discussion was on how hoarding affects deflation.

The fact that you've missed this repeatedly is telling me that you're really not worth any more of my time. I've already explained not only that this is a different issue, but that the article you linked includes points that I agree with. I'm rather certain that I've made it clear I understand what those article(s) are attempting to say.

Also, for future reference, it's wise to link to more than a single source time after time. If you wrote it, then fine, but you suggested otherwise already, and even if you wrote it there should be links to outside sources within the articles rather than further linking within the blog.

It's in my signature after all, neh?

Can we just agree that EVERYONE Austrian or Keynesian expects the exchange rate for real goods and services against BTC will rise and BTC's will buy more in the future.

More whats? Will BTC buy more S.DICE shares in the future? Perhaps. Will BTC buy more S.MPOE shares in the future? Perhaps not, at least if history is any guide. Will BTC buy more iPhones in the future? Certainly, Moore's law. Will BTC buy more blow jobs in the future? Perhaps, if the population keeps growing. Will BTC buy more tuna in the future? Perhaps not, as tuna seems to be going extinct, and for all its virtues the USD can't buy any mastodon meat and never could. The list goes on and on and on.

Why because it actually MEANS something to an economy and an individual

This is a mistaken view much akin to the notion that "go left" MEANS something to a topology and an individual. In practice GPS uses actual coordinates. Which then it translates into go lefts and go rights for the need of the barely literate driver, sure, but what bearing does this have?

[Spendulus]

......for all its virtues the USD can't buy any mastodon meat and never could. ....

I for one eagerly await the first mastadon steak on my parrilla.

http://www.besttopnews.com/news/anomalous/27-07-2007/46455-mastodont-0/

[BTConomist]

Hopefully these badly-structured sentences were somewhat helpful in shining some light on why the increase in the underlying value of a currency is derived from the assumptions/projections about the increase in economic activity, rather than the increase in trading activity (i.e. back and forth buying/selling BTCs for USDs). Unfortunately, the only way to increase economic activity in a market-driven economy is to increase consumption of products/services produced in that economy — this is what I call the increase in spending. And when it comes to BTC-based economics, deflation is just a pretentious way of saying inflation.

If you're trying to relate Bitcoin deflation to the relative inflation of the Dollar against Bitcoin, then sure...... But that doesn't really make a meaningful point above and beyond saying that Bitcoin has deflated relative to the Dollar...

I'm not really sure where you're going with all of that. In terms of spending more in an economy, if the size of the market of goods being bought using the currency increases at a faster rate than the reduction in hording, then price deflation will occur even as the supply of currency being circulated is inflated... But that's completely relative... So again, I'm not really sure where you're going with all of this.

Oh... Now I see where our viewpoints diverge... When discussing inflation/deflation you are referring to the appreciation/depreciation of one currency against the other, whereas I'm referring to the appreciation/depreciation of a currency against the value of goods and services it is used to buy (as measured by the demand and supply of those goods and services, independent of any given currency). Thus, my argument about there not being a BTC-based deflation without the increase in BTC spending basically comes down to the notion that we can't say whether BTC is deflating or inflating unless it is being used to buy goods and services directly.

[Razick]

It is deflationary long term because there will never be more than BTC21,000,000, and those will be gradually removed from circulation. Sure, right now there is inflation, but over time it will drop, as it started to do in December. Am I missing something here? This is all old news so I wouldn't point it out if I didn't think it mitigated your point.

[johnyj]

Fiat money has been inflated by a 400% since 2008,  that is the inflation, but why the price of everything did not rise at least 200%? This just proved that inflative money will not necessary cause price rise, when majority of people are in panic mode, the money supply can increase by 10 fold without causing any significant price appreciation on goods and services, since everyone is saving

The price level is typically decided by consensus

[myrkul]

Fiat money has been inflated by a 400% since 2008,  that is the inflation, but why the price of everything did not rise at least 100%? This just proved that inflative money will not directly cause price rise, the price level is typically decided by consensus

The USD is strongly propped up by it's use as the currency of choice in black markets the world over. Which is in turn propped up by it's enforced use to trade oil. The dollar is a house of cards.

[MPOE-PR]

It is deflationary long term because there will never be more than BTC21,000,000, and those will be gradually removed from circulation. Sure, right now there is inflation, but over time it will drop, as it started to do in December. Am I missing something here? This is all old news so I wouldn't point it out if I didn't think it mitigated your point.

Yeah. Like the actual article, the discussion offered/arguments brought etc. But aaanyway, you're not the first guy here intent on describing what "he thinks" rather than educating himself.

[Razick]

Fiat money has been inflated by a 400% since 2008,  that is the inflation, but why the price of everything did not rise at least 200%? This just proved that inflationary money will not necessary cause price rise, when majority of people are in panic mode, the money supply can increase by 10 fold without causing any significant price appreciation on goods and services, since everyone is saving

The price level is typically decided by consensus

The other reason for this is fractional reserve banking, during the recession, bank reserves increased and the amount of active loans dropped which lowered the effective money supply even though there is actually more currency in circulation.

It's an illusion, and unfortunately it's temporary.

[Razick]

It is deflationary long term because there will never be more than BTC21,000,000, and those will be gradually removed from circulation. Sure, right now there is inflation, but over time it will drop, as it started to do in December. Am I missing something here? This is all old news so I wouldn't point it out if I didn't think it mitigated your point.

Yeah. Like the actual article, the discussion offered/arguments brought etc. But aaanyway, you're not the first guy here intent on describing what "he thinks" rather than educating himself.

So I guess I should just assume you are rude to everyone who doesn't just take what you say as gospel?

[MPOE-PR]

So I guess I should just assume you are rude to everyone who doesn't just take what you say as gospel?

No, I'm direct to everyone. Some take it better than others. This, I suspect, is a function of them.

[Impaler]

Fiat money has been inflated by a 400% since 2008,  that is the inflation, but why the price of everything did not rise at least 200%? This just proved that inflative money will not necessary cause price rise, when majority of people are in panic mode, the money supply can increase by 10 fold without causing any significant price appreciation on goods and services, since everyone is saving

The price level is typically decided by consensus

In a similar vein the production of new BTC dose not necessarily lead to reduction in purchasing power of BTC relative to real goods and services.  Their is good evidence that most newly mined BTCs rapidly end up in cold-storage and only a small amount is actually circulating and bidding on goods (including dollars), thus we see things like the volume on exchanges being fairly consistent over the years even as total coin base increased substantially.  The effective coin-base may actually be decreasing as bubbles grow, we saw the depth of BTC offers on MtGox eventually decline to just 2 weeks worth of mined coins just prior to the crash.

[drhobomanxxiii]

Oh... Now I see where our viewpoints diverge... When discussing inflation/deflation you are referring to the appreciation/depreciation of one currency against the other, whereas I'm referring to the appreciation/depreciation of a currency against the value of goods and services it is used to buy (as measured by the demand and supply of those goods and services, independent of any given currency). Thus, my argument about there not being a BTC-based deflation without the increase in BTC spending basically comes down to the notion that we can't say whether BTC is deflating or inflating unless it is being used to buy goods and services directly.

When looking at an economy wherein two units of exchange are used and there is significant enough opportunities to execute arbitrage, comparing the two currencies against each other for price inflation/deflation is sufficient to establish price inflation/deflation of either currency, supposing that prices accounted for in one of the two currencies is stable as is the case with dollars.

I think what you're really trying to say, however, is that Bitcoin can't deflate if it isn't used as a currency in the first place.

Fiat money has been inflated by a 400% since 2008,  that is the inflation, but why the price of everything did not rise at least 200%? This just proved that inflative money will not necessary cause price rise, when majority of people are in panic mode, the money supply can increase by 10 fold without causing any significant price appreciation on goods and services, since everyone is saving

The price level is typically decided by consensus

What fiat money, and which measure of supply are you using to determine its inflation rate?

When looking at the dollar, it's really not very accurate to say that "the money supply" has been inflated by 400%.

M2 has a relatively insignificant (and already corrected for,) change in response to the 2005 housing bubble and subsequent 2008 financial collapse.
http://research.stlouisfed.org/fred2/series/M2

M1 on the other hand has just about doubled since 2008.
http://research.stlouisfed.org/fred2/series/M1

The monetary base, on the other hand (also called M0 in some circumstances,) is actually higher than M1.
http://research.stlouisfed.org/fred2/series/BASE

My point is that it isn't as simple as attempting to look at aggregates and ask for immediate results. Money is non-neutral and will take time to "feed" through the economy. There are also many other issues involved that I won't go into here because it would just take far too long and most people would probably get bored with the explanations.

But aaanyway, you're not the first guy here intent on describing what "he thinks" rather than educating himself.

Isn't it interesting that you're somehow impervious to this fault, MPOE-PR? If I had a superpower, that would be it. Lucky for you, you obviously have that superpower already. I'm jealous.

[BTConomist]

I think what you're really trying to say, however, is that Bitcoin can't deflate if it isn't used as a currency in the first place.

That's exactly it!... Thanks for restating my main point in such short and precise form.

[drhobomanxxiii]

I think what you're really trying to say, however, is that Bitcoin can't deflate if it isn't used as a currency in the first place.

That's exactly it!... Thanks for restating my main point in such short and precise form.

Once I realized what you were saying, it made perfect sense! The problem is that very few people actually use the proper terminology, so I'm stuck making guesses on what people actually mean. Just be careful to make yourself as clear as possible

[Razick]

So I guess I should just assume you are rude to everyone who doesn't just take what you say as gospel?

No, I'm direct to everyone. Some take it better than others. This, I suspect, is a function of them.

I may have taken your statement wrong, but I don't think I need a degree in economics to have an opinion. That line of thinking is exactly what keeps Keynesian-Authoritarian economists in power.

[agentbluescreen]

Atm Bitcoin is inflationary due to the new coins mined.
But in the long run Bitcoin is deflationary by the amount of coins lost.

The Bitcoin Other the Counter funded Credit Swap derivative is both wildly inlationary and wildly deflationary because it has no stable exchange-valuation, the number of BTC means squat to it's "inflationary or deflationary" exchange-values every 10 minutes, when those  exchange values are solely determined by an anarchistic gaggle of penny stock speculators on a penny stock market.

In fact even it's given exchange-value at a given second is merely notional since it is impossible to move any large amount of liquidity in BTC through a so-called "exchange" penny-stock market at or even near any given last-price for any reasonable period of time. For a large wallet to exchange BTC credit-derivatives for any genuine, stable Medium of Labour Exchange "currency" the seller must assume huge losses under-asking all current asking prices to obtain money as any buyer needs to assume huge losses over-bidding all current bidding prices to obtain obtain any substantial value of our funded credit swaps for it.

What's worse small speculative haggling over tenths of a BTC have as big an effect on it's inflationary/deflationary exchange-valuations as 50,000 lot bid/asks do. Even worse the Credit Swap Derivative's exchange value has little to do with what you paid it's last holder for it that he made off with, for it is only worth what a next owner feels willing to part with to you for it if/when he is good and ready to do so..

For a large institutional seller or buyer to use/move/exchange large liquidities of BTC it would cause a "penny-stock market panic" at the OTC Derivative "Exchanges" every and any day.

[Spendulus]

Fiat money has been inflated by a 400% since 2008,  that is the inflation, but why the price of everything did not rise at least 200%? This just proved that inflative money will not necessary cause price rise, when majority of people are in panic mode, the money supply can increase by 10 fold without causing any significant price appreciation on goods and services, since everyone is saving

The price level is typically decided by consensus

A.  400%, not correct.
B.  That is not the inflation.
C.  Re why did prices not rise 200%, latent inflation.  Check historically countries that printed money during wartime, including the US during Vietnam.  Inflation lags the printing by a couple years.
D.  People in panic mode, you have this reversed.  Hyperinflation occurs when they dump currency any way possible, increasing the money supply dramatically.