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Author Topic: Will deflationary model be a hindrance to general acceptance of Bitcoin?  (Read 4811 times)
ShadowOfHarbringer
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March 06, 2011, 09:13:35 PM
 #21

Wait!, what?
So, just how am I going to get anyone to accept a pay-cut?

Reverse the question.
How is everyone going to make you accept a pay-rise when there is inflation ?

It's the same problem, just different person will have to deal with it this time.


And as an investor, why should I take a risk and invest my money in any business if I get "safe interest" by doing nothing?

That somehow didn't stop americans on the wild west (1800s).
It was a deflationary period, and simultaneously one of the greatest periods in terms of wealth increase in society.

So how did they do that ? It seems that is not a problem.

Perhaps you should only do smart & high-profit investments - investments which will bring you greater profits.
Doing not-so-good investments becomes useless, because you can earn more just by keeping money in a safe. So this encourages better, wiser, smarter, more profittable investments than inflationary environment.

For "safe" investments, just hold on to your money. No need to work hard. Simply wait.

I like bitcoin, and I think it has potential as an internet currency, but I doubt it'll be a major player in the financial market.

We shall see.

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March 06, 2011, 09:25:16 PM
 #22


Greedier people will invest their bitcoins. People who want a safe investment will just hold onto them.
[/quote]

Perhaps.
Although my university studies wasn't en economics, I did manage to pick up a thing or two from those classes.
The big problem with a deflationary economic model is that your money will be worth more tomorrow, we all know this, and this does works as a break for the economy, right.

Very few people will risk their money if they don't have to. There will be some, but most investments will cease.
Most consumers will "wait" with their purchases of the non essential things. Everything will be cheaper tomorrow.
Business will fail since people won't buy there, or they will downsize. Investors will see this and hold on to their money harder. More business will fail to get funding and end up in trouble.

From an environmental perspective it might not be bad if people held on to their stuff longer, but economically it's quite bad.
If you have a different truth I'd love to hear it, but in essence this is mainstream economics, and it does seem quite reasonable.

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kiba
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March 06, 2011, 09:31:10 PM
 #23

Perhaps.
Although my university studies wasn't en economics, I did manage to pick up a thing or two from those classes.
The big problem with a deflationary economic model is that your money will be worth more tomorrow, we all know this, and this does works as a break for the economy, right.

Very few people will risk their money if they don't have to. There will be some, but most investments will cease.
Most consumers will "wait" with their purchases of the non essential things. Everything will be cheaper tomorrow.
Business will fail since people won't buy there, or they will downsize. Investors will see this and hold on to their money harder. More business will fail to get funding and end up in trouble.

From an environmental perspective it might not be bad if people held on to their stuff longer, but economically it's quite bad.
If you have a different truth I'd love to hear it, but in essence this is mainstream economics, and it does seem quite reasonable.

All of this is merely extending the consumer's time preference horizon and making it less possible for companies with unprofitable ideas and execution to succeed. See https://en.bitcoin.it/wiki/Deflationary_spiral

For price deflation to sustain itself, real growth must be achieved. This is what happening in the Bitcoin economy, therefore it isn't such a bad thing.

ShadowOfHarbringer
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March 06, 2011, 09:36:57 PM
 #24

From an environmental perspective it might not be bad if people held on to their stuff longer, but economically it's quite bad.
If you have a different truth I'd love to hear it, but in essence this is mainstream economics, and it does seem quite reasonable.

It seems to me that you were reading some of today's economic theories which claim that any deflation is bad for economy.
They are lies, natural monetary deflation itself can be good for economy, and the history of the world proves it without any doubt.

Using inflation to run entire economy is very new invention, it has maximum 200-300 years. Before that there were only bullion - based, bullion - backed deflationary economies (with some small exceptions from the rule perhaps).

ribuck
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March 06, 2011, 10:07:52 PM
 #25

From an environmental perspective it might not be bad if people held on to their stuff longer, but economically it's quite bad.
Suppose I accept the premise that deflation would make people hold on to their stuff longer.

Of course it's good for the environment, as you point out. But why is it "bad economically"? If people hold on to their stuff longer, fewer things are needed, and we all get more leisure time because we're not frantically working to replace stuff that we can hold on to for longer.

Remember, there's no such thing as "the economy". There is just people doing stuff. And if people prefer to work half as long and hold on to their stuff twice as long, it's not a problem. We don't owe slavery to "the economy".
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March 06, 2011, 10:32:26 PM
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Quote
Greedier people will invest their bitcoins. People who want a safe investment will just hold onto them.

Perhaps.
Although my university studies wasn't en economics, I did manage to pick up a thing or two from those classes.
The big problem with a deflationary economic model is that your money will be worth more tomorrow, we all know this, and this does works as a break for the economy, right.

Very few people will risk their money if they don't have to. There will be some, but most investments will cease.
Most consumers will "wait" with their purchases of the non essential things. Everything will be cheaper tomorrow.
Business will fail since people won't buy there, or they will downsize. Investors will see this and hold on to their money harder. More business will fail to get funding and end up in trouble.

From an environmental perspective it might not be bad if people held on to their stuff longer, but economically it's quite bad.
If you have a different truth I'd love to hear it, but in essence this is mainstream economics, and it does seem quite reasonable.

Business will fail? but won't that reduce the supply of goods driving prices back up?

In a fixed money supply system, deflation is a consequence of growth; the economy is more efficient at creating goods, so prices go down. This is good!

In our fractional reserve system, the banks multiply by 10 the money supply. When there is a recession they stop lending and the money supply can plummet back to 1x. This may be a very disruptive situation and some call it a spiral.

The value of the money supply roughly equals the value of goods that can be bought with it. If there is deflation and the economy is growing, then who cares, great. If there is deflation and the economy is contracting then deflation will stop, people will spend more, shazam! It's a self stabilizing system.

In any case, the problem with deflation is entirely attributable to the fractional reserve system. Inflation is just an excuse for big government. That's it.



kiba
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March 06, 2011, 10:40:52 PM
 #27

Business will fail? but won't that reduce the supply of goods driving prices back up?

Generally, less efficient companies will fail. The surviving companies are forced to drive for ever increasing efficiency to remain profitable.

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March 06, 2011, 11:37:03 PM
 #28

Deflation fear mongering is beyond retarded. OMG I'm going to be richer tomorrow, nooooo. Economies don't grow because people buy and use shit; economies grow because people make more than they use. Jesus, this would be Econ 001 in a sane world. Guess what, people close to the fucking spigot lie to you.  

How the %$&^ could it be better for people who work for money to have their money lose value instead of gain it?

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marcus_of_augustus
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March 06, 2011, 11:59:16 PM
 #29


Deflationary bitcoin is predicated on the assumption that bitcoin demand will grow faster than bitcoin supply (currently BTC 7200 per day).

FreeMoney
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March 07, 2011, 12:32:19 AM
 #30


Deflationary bitcoin is predicated on the assumption that bitcoin demand will grow faster than bitcoin supply (currently BTC 7200 per day).

Bitcoin has lots of money supply inflation now, but that will slow and then stop. It could have price inflation if new coins were not met by new users or increased use.

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kiba
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March 07, 2011, 12:44:14 AM
 #31

Bitcoin has lots of money supply inflation now, but that will slow and then stop. It could have price inflation if new coins were not met by new users or increased use.

Which was generally the case since the first slashdotting happened.

Jim Hyslop
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March 07, 2011, 01:17:29 AM
 #32

In a fixed money supply system, deflation is a consequence of growth; the economy is more efficient at creating goods, so prices go down. This is good!
Um, OK, but... if the company I'm working for is more efficient, and its costs go down (partly because its suppliers' prices go down) won't my company want to keep its prices at the same level, to increase its profit margin?

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kiba
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March 07, 2011, 01:29:43 AM
 #33

In a fixed money supply system, deflation is a consequence of growth; the economy is more efficient at creating goods, so prices go down. This is good!
Um, OK, but... if the company I'm working for is more efficient, and its costs go down (partly because its suppliers' prices go down) won't my company want to keep its prices at the same level, to increase its profit margin?

--
Jim

Your profit-margin might get eaten up by competitors who charge less.

hazek
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March 07, 2011, 02:46:33 AM
 #34

Except - how do you convince the majority of people, who have no clue how the economy works, that getting pay cuts is... well, maybe not "good" but is certainly normal? And unless you can convince people to start using Bitcoins in every day transactions, I don't see how BTC are going to be accepted very much. And if they're not going to be used in every day transactions, what's the point?

My friend you worry too much. Gold which has similar properties as BitCoins has been chosen by the market consistently throughout the last 6000 years so as the best suited commodity to use as money. As long as people are free to choose they'll always pick sound money over fiat and you have to keep in mind that currently people don't have a choice but are forced by law to accept ever depreciating currency.

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