Inflation, Deflation, and the Coming Era of Bitcoin

[BobK71]

I wrote the following in defense of my thesis that something like the gold standard is coming back:

I was at first surprised to read that Thomas Jefferson saw that the state-bank elites would take wealth from the rest of the population by alternating inflation and deflation.  It was through much evidence and reflection that I saw how true it is.

The role of deflation is not just to protect the reputation of their system by keeping their money 'sound' (though that's very important to them.)  It's also to correct the distortions in the economy by re-orienting productive forces and sobering up the over-consumption in order to get the population ready for another round of growth and inflation.  (This all sounds reasonable until you realize that it was the elites who caused and benefited most from the inflation that caused the distortions in the first place, and the general public who suffer the most during the adjustment by deflation.)  Deflation is every bit as 'necessary' as inflation.

Whether gold standard or fiat money, the basic character of the system has never really changed.  (The elites didn't institute gold and silver standards out of the goodness of their heart any more than they did the fiat system!)  Even under fiat money, consumer prices in the West haven't risen too quickly, for most of the past 45 years.  (You could say consumer goods are a substitute for gold, for now.)  Also, under a (de-facto) gold or Bitcoin standard, inflation is possible to create, if the price of gold or Bitcoin is high enough.

There are major differences between hard-money standards and fiat.  The big forces that ended the gold standard over the 20th century were increased democracy and power of labor unions in the West.  This has tilted policies in favor of inflation, at least in the West.  You can see this clearly by how gold prices were flat over centuries from 1690, in Britain and the US, but rose 50-fold in dollars since the early 20th century.

In effect, what is going on is that the elites have been forced to placate the outer ring of their alliance, the Western voters.  They have been reducing the severity of deflationary pain in the West, in hopes of keeping these people happy.  A bigger share of the pain has been shifted outside the West.  The avoidance of painful but economically necessary adjustments in the West has made the countries structurally and temperamentally less productive, while, paradoxically, the supposed strength of these countries are at the heart of the power of the Western elites.

So you can see they have a fundamental problem on their hands, at this point.  You can argue that, one way or another, more painful adjustments must take place among Westerners, or the entire modern global system will be damaged, maybe seriously.  It may not be a totally done deal, but there are two major reasons now is a good time to impose this severity.

First, it's clear to anyone paying attention that all the financial distortions and boom-bust cycles over the last decades are heavily tied to Western inflationary policies.  To convince the educated of the need for 'sound money,' the elites will only need to unleash certain select truths to the media.  Second, the rise of 'populism' across the West provides both an indication of the long-term problems of inflation and a convenient scapegoat for the coming pain from deflation.  If markets crash and economies contract, it's because of the surface-level problems of Trump's aggressive policies, or Brexit, both of which are the embodiment of this 'populism.'  Or at least that's what the mass media will say.

Ultimately, the Western elites' power base includes the perception that they are uniquely friendly to free markets and property rights.  State-sponsored asset inflation simply can't go on forever, and a particularly nasty proponent for this, fiat money, might have to be rooted out.  Even though, as I mentioned, nothing is 100% certain, and there may be delays and bumps on this road, this is where I would place my bet.

[I wrote the above as a reply to a fellow poster on another forum who argued that the Western elites will never give up fiat money, which is the basis of their power by inflation.]

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[BobK71]

As I've mentioned elsewhere, 'something like the gold standard' will probably not be the old elite-sponsored mainstream-economist story that 'gold is money and dollars are debt.'  (That story has proved to be a lot of trouble for the elites.)

Rather, the narrative might be 'if gold or crypto goes up, it means savers are escaping dollars and euros.  That is the market's way of telling us our policies are too inflationary, and we'd better cut back printing and borrowing money.'

It won't be quite the same story, but it will basically work the same way.

[3acaga]

Interesting information, thanks to the author !!!
My opinion, until the states find a way to control the incomes of their citizens in cryptocurrency volumes - there can be no strong progress in using and switching to real money.
P.S. Governments cannot refuse to collect the taxes they need for social benefits.

[houjinglong]

Although Bitcoin was born in the last financial crisis, it does not mean that the relationship between Bitcoin and the financial crisis is inversely proportional. Just like the depreciation of the global capital market in the past few months, the cryptocurrency market has also depreciated.

[Dimon8]

Thanks for the article, very informative. The global capital market and crypto repair are managed in accordance with a well-thought-out scheme, this is obvious. I think that these markets are designed to accelerate the globalization of the whole earth.

[davis196]

Yeah,the western elites are quilty for everything bad that ever happened and will happen on this planet.
The power of the USA relies on their fiat money prinitng machine anf their increasing debt.The problem is that this will lead to increasing inequality inside the american society,which will,sooner or later,lead to a revolution similar to the French revolution or the Great October revolution in Russia.This might happen after 40-50 years.

[wuvdoll]

The point of bitcoin when it came out was to be decentralized, to be apart from any control over how it works and leaving the coin to be as democratic as possible, when segwit passed it was thanks to everyone agreeing to it, there are still places that uses non-segwit blockchain as well, when lightning network started it suppose to be the epitome of fast transactions but its still tweaked and worked on and not as common as it should be because not enough people support it so far.

Bitcoin and basically all crypto is more decentralized in the sense that when it comes out at the beginning it is what it is and changing it later on is very difficult. Hence, inflation and deflation would not affect bitcoin as much as any other currency. It can have small affects because dollar will keep on losing value, it always has and that would make bitcoin more valuable but thats the all extend of it.

[BagzMM]

Thank you this interesting and informative information that awakens the mind of everyone. Looking forward for the development worldwide.

[xiaoY]

Yes, very much agree. The next decade is the most important decade for the global economy and stability. There will be a large number of unemployment booms. Some countries will have revolutions. France has already seen such a phenomenon. So the next decade is a decade of suffering. Millennials are prepared.