Why is Inflation a Bad Thing?

[taskly]

I see a lot of anti-inflation sentiment around. I am frankly in disagreement with it all. The 'hodl' mentality is deflationary spiral nonsense which does nothing to help the economy of Bitcoin.

I believe there should be inflation to get the economy of Bitcoin going so the market cap rises on actual economic activity than pointless speculation. This should be fixed at about 1.5% annually. This will encourage investment and commerce, which is the point of a currency.

There are a lot of ways you can do inflation. You could give the new coins to miners, or you could do a "stock split" where the amount of Bitcoin an individual has increases 1.5% annually.

Bitcoin is always being lost. As of 2017, there were 3.8 million BTC lost out of a total supply of 16.4 million BTC. That makes the effective amount of BTC only 12.6 million (at that time).  12.6Mm/21MM is a little over half of the total amount of Bitcoin.

If you had 1.5% inflation, it would take decades to get back to merely 21 million.



If you go with the option of 'stock splits' to induce inflation, no savers would lose out. They would be rewarded from holding.

I don't see why inflation is a bad thing. It makes sense.

Resources:

https://www.independent.co.uk/life-style/gadgets-and-tech/news/bitcoin-price-lost-mining-how-to-find-cryptocurrency-value-chainalysis-satoshi-nakamoto-a8091851.html

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[odolvlobo]

I see a lot of anti-inflation sentiment around. I am frankly in disagreement with it all. The 'hodl' mentality is deflationary spiral nonsense which does nothing to help the economy of Bitcoin.

Ask anyone from Venezuela how they feel about inflation. Ask anyone who was an adult in the U.S. in the 1970's what they think about inflation. I'm guessing that you don't think inflation is bad because you have never really experienced it.

I believe there should be inflation to get the economy of Bitcoin going so the market cap rises on actual economic activity than pointless speculation. This should be fixed at about 1.5% annually. This will encourage investment and commerce, which is the point of a currency.

There are a lot of ways you can do inflation. You could give the new coins to miners, or you could do a "stock split" where the amount of Bitcoin an individual has increases 1.5% annually.

You may be happy to know that your suggestion of giving new coins to miners is how it works right now. The current Bitcoin inflation rate is about 4%. It will drop to about 2% in 2020.

[Taki]

New coins just turn the market into a trash. I am for limited number of coin only the most liquid should stay.
Also I think that you looked at the inflation not from every side. Imagine yourself in the situation when prices for food, gasoline, government services are growing all the time but your salary stays the same. Not rainbowly, right? Previous example with Venezuela is one of the freshest and hardest examples.

[The Sceptical Chymist]

Ask anyone from Venezuela how they feel about inflation. Ask anyone who was an adult in the U.S. in the 1970's what they think about inflation. I'm guessing that you don't think inflation is bad because you have never really experienced it.

I'm pretty sure fiat is supposed to have inflation built into it in order to keep people spending rather than hoarding cash--and yeah, those two examples you gave are when it all goes wrong. 

I don't think bitcoin needs any more inflation added to it, else we might see it become like dogecoin, which can't seem to ever keep any gains in price that it makes. 

In addition, I've always harbored doubts as to whether any crypto is going to be useful for anything other than speculation, and I certainly doubt that a "stock split" maneuver would help that much.  The issue has always been adoption--by merchants and consumers.  Until goods & services start to be priced in terms of BTC (and not the USD, for example), and until people start getting paid in bitcoin, there's no motivation for the average person to use it to buy anything.  Right now fiat works just fine.  That certainly could change if, for example, the USD crashed but in an event like that I suspect people would try to get their hands on a stable currency, which would probably be the fiat currency from another country.  I don't think they'd start turning to a volatile currency that could cause them to lose even more money.

OP, glad you're thinking about stuff like this.  I just happen to not agree with your ideas here.

[joniboini]

I believe there should be inflation to get the economy of Bitcoin going so the market cap rises on actual economic activity than pointless speculation. This should be fixed at about 1.5% annually. This will encourage investment and commerce, which is the point of a currency.

I'm not sure if I get this point correctly, but why inflation is required to push economic activity? I'm pretty sure more adoption (merchant start accepting bitcoin, etc) is the key for healthy economic activities, and as you said, not mere speculation. If you want to encourage investment, there is no need to produce more bitcoin. If the supply of the money increase then its buying power will decrease too. Instead of doing that, we should encourage valuable development which will be worth more in the future than today.

[cellard]

Inflation is a modern invention, so I don't understand how all these academics just go around telling "economic lessons" to people about how "real economics work" and then they talk about deflationary spirals and whatnot.

In a Bitcoin world, we wouldn't have dumb money being printed for dumb projects, and people wouldn't magically stop needing things. The economy would actually be a sustainable one. People would still need things. If you were to hodl all of your coins, you would die since you need to pay for food and other needs. Lack of printing, whales sitting on tons of money making interest doing nothing and funding bullshit, controlling all political agendas and so on, and general lack of hyper consumerism due people forced to spend the money because every fiat unit is a ticking timebomb due inflation, would solve most of the problems of the current degenerate capitalism stage.

Of course governments aren't going to let go ability to control monetary policy in exchange of a fair game with clear rules for everyone which cannot be twisted, so as a result Bitcoin is stuck being an hedge against government's fucking up the economy and they will always fuck up the economy through cycles of boom and bust. So even if Bitcoin never becomes a global widely used currency, it still has a potential multi-trillion growth potential as a gold alternative for the digital age.

[shinharu10282016]

Inflation is a bad thing. It not only affects the flow of economies but also the way of life of every people in each country.

JUst look at how severe the economy of Venezuela right now, I think Zimbabwe felt the same kind of inflation Venezuela had, if not worse.

[St4yInTh3D4rk]

Inflation with bitcoin is not possible because satoshi nakamoto is not going to increase the maximum supply from 21 Million to the more level (hopefully),which will result in pure value of a currency just from supply and demand.The general explanation why we don't need inflation is no one here want to lose their value of holdings while holding it long term it will keep them poor and poor even if they are making more money than before.

[Crypto-DesignService]

I have 2 different view on inflation.

Fiat - I don't really like the idea of it inflating, It is easy to manipulate the production of money, no strict regulation on how many % should be produce.

Crypto - It is a good platform for decentralized coin with strict implementation on how many percent they will produce anually. Production should decrease anually
.e.
1st year, 2000% of current total supply
2nd year, 1500% of current total supply
3rd year 1000% of current total supply
and so on.

Coin that has structure like this can be use as a daily currency not as a store of wealth like bitcoin/gold. The difference of this coin with fiat is it's immunity with hyperinflation because of the sctrict implementation on how it will produce coins.

Yearly produce coins can replace lost coins(forgot acess to wallet, send the coin different coin address, etc.).

To add, bitcoin structure is not meant to use as a payment for daily needs, services because of constant reduce of block reward. It is more of a store of wealth like gold.

[davis196]

Small inflation isn't a bad thing.Hyperinflation is always a bad thing.
Having an asset or currency with a price going down forces the people to get rid of that asset.This drives the economy growth.
Bitcoin is the opposite type of those assets.It's value is expected to increase,so that's why more people are motivated to HODL btc in the long term.

[andriarto]

Small inflation isn't a bad thing.Hyperinflation is always a bad thing.
Having an asset or currency with a price going down forces the people to get rid of that asset.This drives the economy growth.
Bitcoin is the opposite type of those assets.It's value is expected to increase,so that's why more people are motivated to HODL btc in the long term.

has a good future because currently bitcoin users are still minimal, so with increasing demand, it will certainly increase the price, so that bitcoin is currently not affected by the inflation that occurs. can we imagine that bitcoin users have reached 50% of the entire world population, of course prices have soared

[jademaxsuy]

Small inflation isn't a bad thing.Hyperinflation is always a bad thing.
Having an asset or currency with a price going down forces the people to get rid of that asset.This drives the economy growth.
Bitcoin is the opposite type of those assets.It's value is expected to increase,so that's why more people are motivated to HODL btc in the long term.

I agree, it's a common sense to get rid of those assets when the price goes down and owners, merchants will decrease and market activities would also decrease the owners get rid of it but with the help of increasing demand (because of buyers) of the asset will increase the price. If hodlers increased then the remaining supply of the assets will decreased and that will result to  increase the demand which also increase the price (hopefully).

[Broly46]

Inflation is always good, because it create more money supply into the market, but the problem is all the money created during the inflation didn't get distributed equally, or not at all distributed, all the money goes to the pocket to the already wealthy, and you and me only received less than 1% of the money created, 99% vs 1%, is it not bad enough when inflation was abused into benefiting the few of the elite who control everything?

[odolvlobo]

Inflation is always good, because it create more money supply into the market, ...

I disagree with that, but regardless ...

... but the problem is all the money created during the inflation didn't get distributed equally, or not at all distributed, all the money goes to the pocket to the already wealthy, and you and me only received less than 1% of the money created, 99% vs 1%, is it not bad enough when inflation was abused into benefiting the few of the elite who control everything?

If money were inflated equally, then it would have no real effect. Imagine that one day the U.S. government declares that 1 dollar is now 2 dollars everywhere. What would change? Nothing, just the numbers. With the current system, banks create the new money and give it to the elite, while the money held by everyone else is devalued.

[mu_enrico]

Inflation is not always a bad thing. Of course like other lessons in social science, it consists of a spectrum. To make it simple, let's say inflation is when banks print more money. Nothing wrong with more money if and only if banks use it for productive activities. In that way, the real value of the money will decrease temporarily, but it will increase after the investment yields desired results.

The problem with "modern inflation" is that banks use more printed money to do unproductive activities, such as inflating stocks, bonds, properties, etc. That's why you have the boom-bust cycle in the assets market.

For more information, you can watch this discussion https://www.youtube.com/watch?v=EC0G7pY4wRE

[Broly46]

Inflation is always good, because it create more money supply into the market, ...

I disagree with that, but regardless ...

... but the problem is all the money created during the inflation didn't get distributed equally, or not at all distributed, all the money goes to the pocket to the already wealthy, and you and me only received less than 1% of the money created, 99% vs 1%, is it not bad enough when inflation was abused into benefiting the few of the elite who control everything?

If money were inflated equally, then it would have no real effect. Imagine that one day the U.S. government declares that 1 dollar is now 2 dollars everywhere. What would change? Nothing, just the numbers. With the current system, banks create the new money and give it to the elite, while the money held by everyone else is devalued.

The nature of inflation created a group a people we called it capitalist, the capitalist are the person who benefit from the skewed inflation that what we have today, the unfair distribution of wealth that ultimately robbing from the poor and the middle class. But we are getting smarter, the few of the elite decide to abuse this capitalism system to the max, and they created the new capitalist that only benefit the fewest of the few, the cronyism capitalism, this is when the money creation are totally NOT distributed to anyone except the elite crony, when your gov tell you the inflation is 5% this years, and they are also telling you some biggest bank on the town need to be bailout, and you should smell crony bailing out each other, this is when they are taking money out from your tax money into the pocket of the elite, it is how perfect bailout are robbing all the 99%, or may be 120% of the total wealth creation, and who gonna pay the price? Inflation gonna pay the bailout, and when it is not enough, the tax payer will also gonna pay the price too, inflation alone will soon not enough to bailout the elite, it is just a matter of time.
And you know why Apple are leaving? Google are leaving? Why more and more big companies that create middle classes are leaving? They don’t want o pay the price, who want to pay the price do not need to leave the country. They may be evil companies to have leave the country, but don’t forget their contributions are good for economy, I don’t understand why people decide to attack something that they don’t understand, they could be mislead by mainstream news. And there is a lot of fake news circulated on the net, no one would know the facts anymore, and it take time and intelligence to tell the facts, most people do not need to know the facts.

The purpose of bitcoin was created to distributed equally, the design itself is the proof of work, I think Satoshi never expect his work are being abused too by the mining farm who decide to mine all the Bitcoin for themselve, but I would like to see what is the end goal of this little experiment in the future.

[tonyja2017]

 inflation has two sides of it. Good inflation and bad inflation. If inflation rises too high, it will cause the value of the currency to fall sharply and that will cause many inhibitions for people with low wages.
In addition, if there is no inflation, people will not be motivated to develop more because they always have a full life and get satisfaction with their salary.
I think inflation should still be available and it should only fluctuate at 5-8% a year. That is a great indicator.

[poptok1]

I think that most important aspect of deflationary economy is the cost of living.
People will always have to buy food and pay for their shelter. Deflation trap mechanism, so widely disused by the economists, usually lacks the part where society has no actual choice in their spending. Its true that economy will slow under deflative currency but it will never stop.
There are also many utilities that require constant funding so, slower growth but still very stable.
And this is the exact reason why most fiat money of today are inflation based, it is the zero growth policy of the globalists.
Its much easier to control and sustain near zero growth with the inflation based on electronic money. We have to bear in mind this one simple fact, since 1960 computer bits became 99.2% of all fiat currency. It was a paradigm shift that almost nobody talks about.
Just like Broly46 said, elite clique of the richest is actively making it hard for everyone else to join the club, by deliberately supporting harmful economic policy.   

[jjjfff]

I'm pretty sure fiat is supposed to have inflation built into it in order to keep people spending rather than hoarding cash--and yeah, those two examples you gave are when it all goes wrong. 

The FED and other central banks need inflation because the system is a ponzi scheme. They keep printing money for themselves.

The system is designed to allow 15 bankers to print almost free money for themselves while 7 billion people work for them.

There's plenty of research and news about this. Look for the level of inequality this  ponzi scheme has created. A handful of families hold 50% of the world's wealth. These families are bankers who have the power to "print" money.

Cryptocurrencies bring transparency into the game. With cryptos the value is real, it's transparent, nobody can print money out of nothing.

Today the FED controls everything. Stock markets go up when the FED wants. It's no longer a real market, it's fake, everything depends on the FED printing more and more money.

[exstasie]

I see a lot of anti-inflation sentiment around. I am frankly in disagreement with it all. The 'hodl' mentality is deflationary spiral nonsense which does nothing to help the economy of Bitcoin.

I believe there should be inflation to get the economy of Bitcoin going so the market cap rises on actual economic activity than pointless speculation. This should be fixed at about 1.5% annually. This will encourage investment and commerce, which is the point of a currency.

I don't totally disagree with you but there are important things to point out here.

The real problem with fiat money and Keynesian economics is money printing is unlimited and unpredictable. At any time, your money can be devalued. A capped supply may not be necessary if we could have a) transparency and predictability about the inflation rate, and b) the inflation rate was sufficiently low that it wouldn't be quickly devalued. With blockchains, we can do that.

I don't pretend to know the best solution. I agree Bitcoin's model encourages hoarding, which has its drawbacks. Other coins have less scarcity or unlimited supplies and may end up being more useful as mediums of exchange since people will be more willing to spend them. Bitcoin may end up being like gold (held in a vault), with other coins seeing more actual circulation. I'm curious to see how it all works out.