Can a deflationary currency really work?

[Anonymous Kid]

What are the incentives to spend your money if it always goes up in value?
Does this not stunt economic growth?

[1713885112]

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[odolvlobo]

You could also ask:

Can an inflationary currency really work?

What are the incentives to save or lend your money if it always goes down in value? Does this not stunt economic growth?

[unholycactus]

You could also ask:

Can an inflationary currency really work?

What are the incentives to save or lend your money if it always goes down in value? Does this not stunt economic growth?

This statement would make a better point if interest didn't exist.
Investing your money (bonds, stocks, anything that could bear interest) as opposed to keeping it in cash is a pretty good method to avoid inflation.

[jseverson]

You could also ask:

Can an inflationary currency really work?

What are the incentives to save or lend your money if it always goes down in value? Does this not stunt economic growth?

Well it's working at the moment. Fiat is inflationary by design precisely to discourage hoarding money and to spur spending, which apparently promotes economic growth. The system is built around it after all. How long it will continue to work is anyone's guess though.

It's hard to imagine how a deflationary currency will work because it goes against the principle of world economy at the moment. There could be a "rich effect" though, where peoples' wealth start growing, and they, in turn, start spending more and more. This phenomenon was observed in Japan recently. Either way, deflation is the least of Bitcoin's worries right now.

[jmlona]

Inflationary and deflationary both have their pros and cons. It is generally accepted that inflationary currencies stimulate the economy as spending is encouraged. In fact though, the only reason they are inflationary currencies is because more can be added to circulation, that is what inflates their value, not much else. A deflationary currency will have the obvious disadvantage of discouraging spending as all present purchases are more expensive in the future. This would have to be counteracted by disincentivising saving, one such option could be negative interest rates, thus better equating future and present day values. The truth of it all is that in economics every time you change one variable another is adjusted and eventually it all comes full circle and then everything must re-adjust again. There is no correct or incorrect way and everything has to be constantly adaptable. This is the big limitation in bitcoin, there is no option to use fiscal stimulation in the future by methods such as quantitative easing.

[jefbigbob70]

There will be much less possible cost-effective investment projects. The economy will shrink.

[alyssa85]

What are the incentives to spend your money if it always goes up in value?
Does this not stunt economic growth?

If there was only one currency, and it was deflationary - yes, it would stunt economic growth.

But we have loads of world fiat currencies, and about 1500 cryptocurrencies, many of why have mild inflation built into them. Such as Ethereum and Doge.

The currency that "wins" on the payment front will likely be a mildly inflationary crypto.

[Hydrogen]

What are the incentives to spend your money if it always goes up in value?
Does this not stunt economic growth?

Were global economies stunted before fractional reserve banking or the modern system of "gold backed" fiat currencies printed without limit out of thin air, were invented?

 

I think its important for people to be skeptical of ideas such as "deflationary currencies stunting economic growth" and not blindly believe in these urban myths without better evidence being provided. Of course bankers love inflationary currencies as it is the best system for fueling wealth redistribution from the poor and middle class upwards to one percenters. Inflationary currencies as a modern analogue to trickle down economics where supposed economists and financial experts have convinced the public that taking on trillions of dollars and euros in debt, the vast majority of which profits the wealthiest demographics--making them richer while everyone else becomes poorer is "best" for society and civilization.

If there was only one currency, and it was deflationary - yes, it would stunt economic growth.

Not to single you out but I'm curious as to how this happens. I have yet to see a good explanation for this and would appreciate it if anyone could enlighten me.    

...

If anyone wants an argument against inflationary policies:

Inflationary policies benefit the rich and do nothing for the public.

• $1 trillion dollars spent on the F-35. Did the majority of this money go to the public, or did it wind up in the pockets of wealthy wall street demographics who comprise the largest majority shareholders of northrop grumman?
• Multi trillion dollar bank bailout bill (TARP). This money went to bankers to bail them out of the bad gambling decisions they made with subprime mortgages.
• War in the middle east. All of the money went to wealthy defense contractors benefiting war profiteers.
• Healthcare reform / obamacare. It was funded by 20+ tax hikes. All of the money went to maintaining the profit margins of big pharma and medical equipment manufacturers, as well as maintaining state based healthcare monopolies with their price fixing campaigns. None of it when towards benefiting the public good.

This is a short list. Virtually every inflationary program and policy is designed to shift debt further onto the shoulders of poor to middle class working americans while shifting wealth further onto the shoulders of those who are already wealthy. This is the only reason inflationary policies are endorsed. It increases the debt potential of the poor while increasing the profit potential of the wealthy.

[cynical]

You could also ask:

Can an inflationary currency really work?

What are the incentives to save or lend your money if it always goes down in value? Does this not stunt economic growth?

Well it's working at the moment. Fiat is inflationary by design precisely to discourage hoarding money and to spur spending, which apparently promotes economic growth. The system is built around it after all. How long it will continue to work is anyone's guess though.

It's hard to imagine how a deflationary currency will work because it goes against the principle of world economy at the moment. There could be a "rich effect" though, where peoples' wealth start growing, and they, in turn, start spending more and more. This phenomenon was observed in Japan recently. Either way, deflation is the least of Bitcoin's worries right now.

This is an interesting thread with some very good posts and points to consider.
It would in fact seem that a deflationary currency cannot work but the point above about the "rich effect" is interesting.
If Bitcoin is constantly rising, in theory it would make sense to spend it because as it rises you have to spend less for the same product/service
Would that figure correctly?

[NicG13]

Far from being a trivial issue, this is probably one of the main reasons bitcoin will not be able to serve as a world currency. We had thousands of years of gold and silver backed money with no real mechanism for creating money through lending, literally out of thin air. But that's also why for thousands of years we had only petty economic growth and development. Our ability to create money as well lend and borrow against the future is what's allowed the phenomenal economic output of the past century or so. Any currency that is deflationary and does not allow for this will probably send us back in time. We've been there. We know it doesn't work well. It's good to have the option, though. And I guess bitcoin will become much like gold, a scarce resource that will allow us to protect our wealth against inflation but, at the same time, use it to pay for goods and services. Mind you, also because of blockchain technology, gold is being digitised and heading in that direction too!

[Notcalculator]

What are the incentives to spend your money if it always goes up in value?
Does this not stunt economic growth?

If there was only one currency, and it was deflationary - yes, it would stunt economic growth.

But we have loads of world fiat currencies, and about 1500 cryptocurrencies, many of why have mild inflation built into them. Such as Ethereum and Doge.

The currency that "wins" on the payment front will likely be a mildly inflationary crypto.

The existence of one does not necessarily have to end the other. I completely agree.
We started from the gold standard then we abandoned it. Doesnt that tell you that we use what best fits our need? Right now we are moving fast and consuming more than we can produce, but that wont be sustainable forever. One day we are going to have to slow down and a deflationary currency would work better for us. But that doesnt necessarily mean we need to abandon fiat. We have fiat, because it could be used to bail us out of economic disasters, but when used irresponsibly, it causes more disasters. We need both deflationary currency and inflationary currency.

[djangocoin]

Who knows.. people say that if it's deflationary then people will just not spend it, but if it's all there is and you need to eat am pretty sure not wanting to starve would outway your hoarding mindset.

Inflation is touted as a good thing in general by pundits, even though the masses moan about it. It is also a flawed model though. People are told to spend (via advertisements) and save (interest) at the same time even though there's no longer an incentive for the latter, and most are not market savvy in the least.

I don't see why the two can't coexist. If both are flawed and both have opposite goals, then perhaps the answer is both. Maybe the solution really is an argument to moderation.. who knows?

[maculeth]

some people would be happy with deflation, where prices in the market decline, but for some people (especially employees), they worry that their salary will be reduced because a decrease in the selling price will cause some companies to lose. we are faced with a difficult situation between deflation and inflation. 

[CASTIEL05]

https://bitcointalk.org/index.php?topic=140793.0
The thread already wrote the possible event when there is a deflationary currency in our economy.
Deflation might not good in the economic growth, as it defines as the purchasing power os higher than price. It may not make a consistent economy but will destroy the stability of economy.

[squatz1]

You could also ask:

Can an inflationary currency really work?

What are the incentives to save or lend your money if it always goes down in value? Does this not stunt economic growth?

Well the thing with that question is that there is an answer to it, yes. As we've seen inflationary currencies do work and they have worked for so long, there's no reason to hold your money (keep too much saved, minus an emergency fund) because if you do the money is always going to be losing value so there's no point to it, inflationary currencies spur economic growth because people go ahead and lend money, invest, etc. Deflationary currencies just have people want to keep their money and have their gains as they don't have to risk anything.

[Kate Beckett]

Yes, it can work. To understand this, it is necessary to conduct a comparative analysis of the inflationary and deflationary economies. Inflation globally undoubtedly induces rash, unnecessary and hasty spending and this is not good. Inflation encouraging this race of spending, contributes to the recurring crises of overproduction and, ultimately, the thoughtless waste of planet resources and human labor. Deflation also contributes to calm and deliberate spending, as well as STRATEGIC accumulation of resources.

[fiulpro]

Man the thing is you are also getting paid and it's inflation is also affecting your salary you will now receive more amount thus it's technically the same thing .
Whatever increase or decrease might take place it will be shown in your salary ! Simple (

[warrior333]

What are the incentives to spend your money if it always goes up in value?
Does this not stunt economic growth?

This is one of the reasons why we still do not see a large spread of cryptocurrencies in trade. Nobody wants to break up with the coins. All are waiting for higher prices. Deflation of the currency, on the contrary stops the development of the economy. It is used by governments of underdeveloped countries to withdraw currency from the population. Inflation, on the contrary, stimulates the modernization of the economy because it allows to withdraw from the population the money that banks gave as loans to enterprises.

[ulhaq]

There is nothing wrong with a deflationary currency. All it means is that prices fall instead of rising. An example - no one cares that the price of technology has fallen while the quality has increased. Look at laptop computers, cell phones, etc. Do people stop buying them because they expect that the price will be lower in the future? Does the technology economy sputter and go to a halt? Obviously it hasn't. People still make purchases.

The idea that an inflationary currency spurs economic growth is silly. You can't get something for nothing. There are real costs to inflation. Easy access to money means that people squander it by buying things that are junked in a few years, start speculative companies that make no sense and provide no useful service. Individual savings are eroded over time. Look at the elderly population in the United States. They have practically no savings. All inflation does is cause a redistribution of wealth. As the new money enters the economy, the first people to get it become wealthier. When they spend it, it causes prices to rise, and so as the new money circulates in the economy, the ones who get it later have to face higher prices.

A more interesting question is what happens to lending. Why would anyone want to borrow in a currency that constantly increases in value? They will have to pay back much more than they borrowed. But this also has an easy solution - the return can be baked into the contract with a negative interest rate. Eg, in an inflationary currency, let's say money is loaned out at 2% interest. In a deflationary currency, money could be lent out at -2% interest.

[Crypto Girl]

https://bitcointalk.org/index.php?topic=140793.0
The thread already wrote the possible event when there is a deflationary currency in our economy.
Deflation might not good in the economic growth, as it defines as the purchasing power os higher than price. It may not make a consistent economy but will destroy the stability of economy.

And neither inflation. These two are will both have a negative effect on economic growth thus it should be balance. Though I think purchasing power will be more useful in deflation as more items can be purchase in one commodity as its value decreases.

However this will be the cons of deflation;

some people would be happy with deflation, where prices in the market decline, but for some people (especially employees), they worry that their salary will be reduced because a decrease in the selling price will cause some companies to lose. we are faced with a difficult situation between deflation and inflation.