Does bitcoin foster economic growth or stagnation?

[johnyj]

The main assumption about inflationary currency is that the economy must grow, that is wrong. Like any living things, once reached certain level of maturity, it can't grow forever, especially when the available resources on the planet are limited, growth without boundary is suicide

BTW, in an inflationary model, the growth resulted in more and more wealth concentrated to a few people, because the new money is issued by a centralized organization, and all the organizations around this organization will get the majority of the money. So it seems the economy is growing, but in reality the majority of people's economy condition is worsening due to inflation eating up their wealth day by day

[teukon]

Could someone explain to me how bitcoin, a deflationary currency, is supposed to be successful when it rewards those who hang on it it?

Could someone explain to me how the USD, an inflationary currency, is supposed to be successful when it punishes those who hang onto it?

[thaaanos]

The main assumption about inflationary currency is that the economy must grow, that is wrong. Like any living things, once reached certain level of maturity, it can't grow forever, especially when the available resources on the planet are limited, growth without boundary is suicide

BTW, in an inflationary model, the growth resulted in more and more wealth concentrated to a few people, because the new money is issued by a centralized organization, and all the organizations around this organization will get the majority of the money. So it seems the economy is growing, but in reality the majority of people's economy condition is worsening due to inflation eating up their wealth day by day

Actually growth with boundary is suicide, in nature you start dying when you stop growing. That's what make people to allways look for new markets, new frontiers, new scapes

[teukon]

Fact: The world's population is growing.

Fact: The Earth's resources are finite.

Fact: The worlds central banks were on the cusp of solving this problem once and for all through brilliant monetary policy when some jerk invented Bitcoin and obliterated this dearest hope.  Now were all doomed; thanks a lot Satoshi. 

[thaaanos]

Fact: The world's population is growing.

Fact: The Earth's resources are finite.

Oh but the universe is vast...

Fact: The worlds central banks were on the cusp of solving this problem once and for all through brilliant monetary policy when some jerk invented Bitcoin and obliterated this dearest hope.  Now were all doomed; thanks a lot Satoshi. 

I will tell you a secret now...

When you reach all known boundaries, what do you do to continue growing?
... You break into a new dimension ....

need proof? you are looking at it.

[Ibian]

I'm not convinced a grade school teacher should be talking about space colonization and dimensional travel.

[thaaanos]

I'm not convinced a grade school teacher should be talking about space colonization and dimensional travel.

you are not looking... there are other dimensions than space.

[alexeft]

Could someone explain to me how bitcoin, a deflationary currency, is supposed to be successful when it rewards those who hang on it it? A currency like that would inherently lead me to believe that no inroads would be made in the future in regards to it's development because who wants to build bitcoin ATMs when not enough people are spending btc or accept bitcoin as a payment if there aren't enough spenders? While fiat currency has many many flaws, it spurs spending. You wouldn't want to keep your fiat in cold storage somewhere under that mattress of yours when you know it would be worth less next year!

You'd go out and spend it on something hoping to retain that value! By my understanding, this is the opposite for bitcoin. We've all heard the phrase "BUY AND HOLD"--is this literally what people will constantly do in the future with bitcoin? How will anything develop if there's no demand to spend in the short term?

When talking about economic growth or stagnation, money is a measure like a meter or a scale.
You add the total number of meters or kilos and you have the total size of the economy.
Problem is, if your print money, you all of a sudden are able to say that my economy amounts to more
money, so, TADAAAAA, my economy got bigger.
What is never taken into account though is the buying power of that money, which nowadays is getting smaller and smaller.
In the end, we fool ourselves that we have economic growth.

Now, imagine the world using 21 mil bitcoins as its sole currency. If you tried to measure the economy in money,
there would apparently never ever exist economic growth.
BUT, if this year the economy consisted of 2 cars, 2 buses, 2 trucks and 1 spaceship and the next year it consisted
of double that, wouldn't that be growth? Wouldn't that growth be shared by all bitcoin holders?

CONCLUSION: the amount of money DOESN'T reflect value.


PS: I'm not an economist. Just thinking out loud. Flame me all you want.  

[Impaler]

People must remember that money has LIQUIDITY and that has value independent of the underlying change in value.  Everyone who holds money is enjoying liquidity and inflation is what you pay for that.  Expecting liquidity for free is expecting to be subsidized by the rest of society.

[Lloydie]

People must remember that money has LIQUIDITY and that has value independent of the underlying change in value.  Everyone who holds money is enjoying liquidity and inflation is what you pay for that.  Expecting liquidity for free is expecting to be subsidized by the rest of society.

Bitcoin has liquidity. Yet it doesn't have inflation. So your logic does not hold. Liquidity can be provided via divisibility.

Expecting inflation for free is expecting subsidisation. I.e. rich people enjoy ever inflating asset prices is pure subsidisation from society. Such a sick system.

[thaaanos]

Could someone explain to me how bitcoin, a deflationary currency, is supposed to be successful when it rewards those who hang on it it? A currency like that would inherently lead me to believe that no inroads would be made in the future in regards to it's development because who wants to build bitcoin ATMs when not enough people are spending btc or accept bitcoin as a payment if there aren't enough spenders? While fiat currency has many many flaws, it spurs spending. You wouldn't want to keep your fiat in cold storage somewhere under that mattress of yours when you know it would be worth less next year!

You'd go out and spend it on something hoping to retain that value! By my understanding, this is the opposite for bitcoin. We've all heard the phrase "BUY AND HOLD"--is this literally what people will constantly do in the future with bitcoin? How will anything develop if there's no demand to spend in the short term?

When talking about economic growth or stagnation, money is a measure like a meter or a scale.
You add the total number of meters or kilos and you have the total size of the economy.
Problem is, if your print money, you all of a sudden are able to say that my economy amounts to more
money, so, TADAAAAA, my economy got bigger.
What is never taken into account though is the buying power of that money, which nowadays is getting smaller and smaller.
In the end, we fool ourselves that we have economic growth.

Now, imagine the world using 21 mil bitcoins as its sole currency. If you tried to measure the economy in money,
there would apparently never ever exist economic growth.
BUT, if this year the economy consisted of 2 cars, 2 buses, 2 trucks and 1 spaceship and the next year it consisted
of double that, wouldn't that be growth? Wouldn't that growth be shared by all bitcoin holders?

CONCLUSION: the amount of money DOESN'T reflect value.


PS: I'm not an economist. Just thinking out loud. Flame me all you want.  

At least you are not a Hodling Parrot

What if economy is like a coastline, trying to grow into a fractal dimension, keeping a constant measure would make it look as nothing changed, only by adding more resolution to your metric you would be able to measure the true size, and growth.

[Lloydie]

When talking about economic growth or stagnation, money is a measure like a meter or a scale.
You add the total number of meters or kilos and you have the total size of the economy.
Problem is, if your print money, you all of a sudden are able to say that my economy amounts to more
money, so, TADAAAAA, my economy got bigger.
What is never taken into account though is the buying power of that money, which nowadays is getting smaller and smaller.
In the end, we fool ourselves that we have economic growth.

Now, imagine the world using 21 mil bitcoins as its sole currency. If you tried to measure the economy in money,
there would apparently never ever exist economic growth.
BUT, if this year the economy consisted of 2 cars, 2 buses, 2 trucks and 1 spaceship and the next year it consisted
of double that, wouldn't that be growth? Wouldn't that growth be shared by all bitcoin holders?

CONCLUSION: the amount of money DOESN'T reflect value.


PS: I'm not an economist. Just thinking out loud. Flame me all you want.  

At least you are not a Hodling Parrot

What if economy is like a coastline, trying to grow into a fractal dimension, keeping a constant measure would make it look as nothing changed, only by adding more resolution to your metric you would be able to measure the true size, and growth.

That's why bitcoin has divisibility, to show us all the fine granularity.

[alexeft]

At least you are not a Hodling Parrot

I am a hodler!!!  
I will only spend when I please, not when a bank or whoever else says that I should!

What if economy is like a coastline, trying to grow into a fractal dimension, keeping a constant measure would make it look as nothing changed, only by adding more resolution to your metric you would be able to measure the true size, and growth.

I would bet that the economy is like that!
The question is, why do I need more money to reflect that?
Why is not a constant amount of money adequate?
Even if the above is necessary, why should it be done via debt?

[alexeft]

When talking about economic growth or stagnation, money is a measure like a meter or a scale.
You add the total number of meters or kilos and you have the total size of the economy.
Problem is, if your print money, you all of a sudden are able to say that my economy amounts to more
money, so, TADAAAAA, my economy got bigger.
What is never taken into account though is the buying power of that money, which nowadays is getting smaller and smaller.
In the end, we fool ourselves that we have economic growth.

Now, imagine the world using 21 mil bitcoins as its sole currency. If you tried to measure the economy in money,
there would apparently never ever exist economic growth.
BUT, if this year the economy consisted of 2 cars, 2 buses, 2 trucks and 1 spaceship and the next year it consisted
of double that, wouldn't that be growth? Wouldn't that growth be shared by all bitcoin holders?

CONCLUSION: the amount of money DOESN'T reflect value.


PS: I'm not an economist. Just thinking out loud. Flame me all you want.  

At least you are not a Hodling Parrot

What if economy is like a coastline, trying to grow into a fractal dimension, keeping a constant measure would make it look as nothing changed, only by adding more resolution to your metric you would be able to measure the true size, and growth.

That's why bitcoin has divisibility, to show us all the fine granularity.

Exactly!!!! 

[thaaanos]

What if economy is like a coastline, trying to grow into a fractal dimension, keeping a constant measure would make it look as nothing changed, only by adding more resolution to your metric you would be able to measure the true size, and growth.

I would bet that the economy is like that!
The question is, why do I need more money to reflect that?
Why is not a constant amount of money adequate?
Even if the above is necessary, why should it be done via debt?

All living systems/subsystems try to maximize their interface with their environment by using fractal structures, as they provide surface/volume ratio, I don't see why a human society is different,

This is why money supply in FIAT world needs to be adjusted and is not constant

That's why bitcoin has divisibility, to show us all the fine granularity.

True but the point from human perspective is to keep the metric stable localy, bitcoin is bringing in (local) global information noise,
It's like using global variables than local.
Imagine if you were living in an expanding surface, and you had to constantly adjust your meter to account for the total surface,even though localy nothing really changed

[alexeft]

All living systems/subsystems try to maximize their interface with their environment by using fractal structures, as they provide surface/volume ratio

That's totally wrong, there are elephants and whales that have a small surface/volume ratio
and there are mice with a much bigger ratio.

True but the point from human perspective is to keep the metric stable localy, bitcoin is bringing in (local) global information noise,
It's like using global variables than local.
Imagine if you were living in an expanding surface, and you had to constantly adjust your meter to account for the total surface,even though localy nothing really changed

Pi (fractalish in itself) is always bigger than itself with one less decimal (3.141 is bigger than 3.14, both are still pi ) but always smaller than 3.15
It has a limit.

Out money supply is limitless.

See the difference?

[painlord2k]

A currency with stable supply (like gold or bitcoin) allow a better economic calculation than a currency like $ or € that is continually inflating.
The problem is, a unit of accounting is supposed to be a stable, fixed, unit. But an inflating currency is a shrinking unit of account.
This make accounting always more meaningless.
If I account for capital expenditure (say a big milling machine for my factory, that will be used up in ten years) I must foresee the time it  need to pay back the capital invested plus interests and how much time I need to turn a decent profit.

If the currency is stable, I can impute 10% depreciation every year for ten year and it's done. With an inflating currency, I must impute the same 10% but I must foresee how much the currency will devalue (and the price of the machine will increase) to end saving enough money to buy the machine back when it is time to substitute it. This is order of magnitude more difficult, because if I foresee a number too high (to be safe), I will end to sell my products with a price too high, so I could be trick to not produce because I could not make a profit. Or, if i foresee a price too low, I will sell too low and will end without the money needed to buy the next machine when the first need to be scrapped. Both ways, I end with lower profits and probably end producing what I'm producing.

In a free market, competing firms have a margin of error in their economic calculations. Some will have it right enough to stay and other will fail.

An inflating currency will make business appear viable when they are not and a deflating currency will make business appear not viable when they are.
The difference is inflating will cause to waste resources in a losing business where deflating will cause to save resources surplus more.
If something wrong happen unexpectedly in a inflating environment the business will go bust a lot easier than in a deflating environment where conditions force you to pay back faster the capital.

[Impaler]

2K:  Above ground gold supplies have vastly increased in the 20th century and continue to increase at something like 1.5% percent per year.

Due to horrible misuse of the word inflation on these forums it is hard to tell what people actually mean by inflation, do you mean change in value or change in supply.  Inflation has always meant a change in value but it's a popular fallacy here to call any change in supply, even one which is done to keep money constant in value an inflation event.  It is unfortunate that you will need to be more precise because of this.

I'm glad to see that you have a good grasp of business financing, and I can certainly agree that any change in money value introduces distortions into this financing and this is undesirable.  

With regard to what factors keep a business afloat and which go under the one to consider is the interest rate.

If your business activity can return 3% per year nominal, but interest rates are 5% then your business can not pay back it's loans OR if the business had no debt the owner of the business should have liquidated the business assets and put the money in a bank.  I will frequently get morons saying that being 'self financing' and not having debt makes interest rates irreverent, but interest rates are a universal signal for all investors, thouse making new investments and thouse continuing to RE-invest in their existing businesses.  The rate of inflation or deflation doesn't need to be considered in this calculation because your always returning to money at the end and your just trying to maximize your profits (or minimize losses) irregardless of what money is doing.

If your concerned about 'mal-investment' the notion that interest rates may be encouraging activity which is not productive in a REAL sense, then you would look at rate of return vs inflation/deflation.  If returns exceed inflation then the business is actually being productive.

But business motivation is based on interest not inflation so we would only expect mal-investment when interest rates are lower then inflation.  This would allow a gap in which a business could be returning more then interest rates but less then inflation and would be judged to be productive against interest rates but would be unproductive against inflation.  Currently interest rates are lower then inflation buy just a bit as both are nearly zero.  But we must also consider that their are lots of idle resources right now (human, infrastructure, machinery etc) and idle resources decay at an appreciable rate, probably in excess of 1-2% per year.   We can't put thouse resources in a vault and get them back later if they are not used now.  We shouldn't seriously worry about mal-investment until were seeing a gap of several points between interest and inflation AND we have a 'hot' economy operating near full potential.

Ideally what I think we want is for both inflation AND interest rates to be brought to zero, this would present no window for mal-investment while allowing the maximum rate of truly productive business activity to be conducted as any activity with a net return would be profitable.

[Lloydie]

If your concerned about 'mal-investment' the notion that interest rates may be encouraging activity which is not productive in a REAL sense, then you would look at rate of return vs inflation/deflation.  If returns equal or exceed inflation then the business is actually being productive. 

No, this is not true. A business can exceed the inflation rate and still be economically unproductive.

I present to you China. The economy produces millions of empty apartments that appreciate in value every year by more than double the rate of inflation. 

Rich people own these apartments and prefer to keep them empty so as not to devalue them, plus the fact that most of them are just shells without internal walls and fittings.

Debt is incurred by ordinary people to hop onto the property ladder. This pushes up asset prices further. Inequality in society worsens.

Meanwhile, poor people live in the buildings' basements, in cramped flats or ghettos. Is the Chinese economy really productive? Not in my view.

[notme]

Deflation is terrible.... If you have debt denominated in that currency.  Otherwise, no problem.  The only victims of deflationary death spirals are debtors.  Everyone else sees a drop in prices and wages eventually follow, but cheaper goods and services balance it.

Read Adam Smith.  He describes historical inflationary and deflationary periods that occurred during the time of metal based money.

Deflation isn't the enemy, but high debt loads and central planning can make it a menace.