Inflation, printing money and Bitcoin

[CristianOff]

During this period of pandemic me and many other people expected cryptocurrency prices to go up by a lot,
especially since the governments around the world started printing billions.

In this topic I explain why this did not happen, but first let's get an idea of inflation related to printing money.
We will use basic numbers in millions rather than trillions.


Let's say that we are in a country where the entire economy output can be represented by 10 million pens.
The average price / product is $1 and therefore the economy produces $10M worth of pens.
The money supply printed is $10 million.

The bank prints another $10 million (double the money supply to $20M) however the number of pens
stays the same. Because of this, people may have more money and firms may push the price to an average of $2/pen. The economy is
now worth $20M rather than $10M but the number of goods is the same. The price increased shows us that we had an inflation of 100%
In this condition the GDP of the country is an illusion.
___________________________________________________________
Number of Pens           Money Supply               Price/pen           
   
10 million                             $10 million                     $1                     
                                               
                                                ||
                                          scrr print money
                                                ||
                                               
10 million                             $20 million                     $2                     
____________________________________________________________
If you were a "wealthy" of this system and had $1million in savings, that would be worth just $500k after money is printed.



A historical fact worth mentioning that seems like everybody is leaving out is a Germany of 1920s where the german currency
became worthless. Germany had to carry world  war 1 reparations
to allied civilians. They just decided to print more money
On a logarithmic scale it looks like this:





Recession periods don't cause inflation as long as printing is regulated
In other words, countries have "free to print" but they should not abuse this system otherwise it will turn into a 1920s-1930s germany scenario.

Bank of England is an example as during the liquidity trap between 2008-2012 it printed a lot of money however this did not create
inflation.
Liquidity trap = "inability of a central bank to stimulate economic growth through interest rate cuts. The goal is to stimulate spending by making borrowing cheaper and saving less attractive. The trap opens up when the public’s demand for goods and services is so weak that even an interest rate of zero fails to juice activity. "


With Covid-19 happening, we've seen people spending lots of money on supplies, etc. This was good as it helps us avoid a scenario in which prices fall,
causing people to delay spending, which makes prices fall even more, and so on down while the bank prints money (BANG!)

In other words, it is estimated that inflation has slightly increased since 2019 (less than 0.2%) however not enough to create a big crypto movement that
would have sent Bitcoin to the moon and beyond. The money printed were retained "adequate" to the situation.


What are your thoughts? Anything meaningful you can add?

[1715120537]

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[asus09]

Printing money will get crisis for world economic and bitcoin become good solution how your money value keep touch with higher price without get inflation value. Many moment money is have lower value after several years later and bitcoin keep going on higher price without know anymore with inflation.

[HeRetiK]

During this period of pandemic me and many other people expected cryptocurrency prices to go up by a lot,
especially since the governments around the world started printing billions.

In this topic I explain why this did not happen, but first let's get an idea of inflation related to printing money.
We will use basic numbers in millions rather than trillions.

While we're luckily far from a world war hyperinflation scenario I think it's also still too soon to expect any noticable effects on the Bitcoin price from the covid-19 subventions, assuming they occur.

Additionally -- in the EU at least, I haven't been following the US that closely -- the majority of subventions are yet to come, so we haven't seen the full extend in which additional currency will get into circulation. Just like we haven't seen the full extend of covid-19's impact on the world economies.

So while I agree with your sentiment I think it still remains to be seen whether the amount being printed really is "adequate".

[exstasie]

Additionally -- in the EU at least, I haven't been following the US that closely -- the majority of subventions are yet to come, so we haven't seen the full extend in which additional currency will get into circulation. Just like we haven't seen the full extend of covid-19's impact on the world economies.

We haven't seen the full extent anywhere, and probably won't for a year or two, maybe more.

Every economy has experienced a brutal demand shock. That has created excess productive capacity and excess inventories. At the same time, consumers are losing disposable income and refusing to spend money due to the economic uncertainty. Credit lines are no longer being extended. All of this reinforces excess supply and plunging demand across all goods and services. That can in turn cause defaults and bankruptcies, which reinforce layoffs and again, falling demand and falling prices. Basically this:



I think there is legitimate growing fear that we are entering a depression, not a period of high inflation or hyperinflation. Those could come afterwards. Right now, it looks like no amount of money printing or interest rate dropping will stimulate the economy into a state of high inflation. The plunge of oil prices and most commodities is ominous. Unprecedented demand for food banks while food commodity prices drop to 2008 levels, also ominous.

[abhiseshakana]

You can look for references on modern monetary theory (MMT) initiated by Michael Hudson regarding printing money. According to supporters of the new economic model, Keynesian thought is false knowledge intentionally spread by capitalists so they can capture their wealth. So it is different between what they teach and what the capitalists practice.

According to Michael Hudson, Germany was the country that lost the first world war in 1919 and had to bear the burden of paying all the costs of war to the war-winning country. But in 1933, Germany had begun to fight, even when the Nazi came to power in 1936 Germany became a terrible superpower. Whereas on the other side of the world the United States is experiencing great depression but America became the winner of the second world war. And history is always written by the winner so that the greatness of Germany in building its greatness for 15 years sank and the world was filled with theories from America.

When it lost in the first world war, Germany did not use a gold-based currency. German marks are backed up by work and goods of equal value. So in Germany when the war was the key was printing money and the guarantee was the product. Because when it's all produced for the country, the state pays. Unfortunately at that time printing money was used to create a tool of war so that Germany could invade.

Every country can print money, Japan also adheres to MMT by printing money but inflation does not occur even Japan wants inflation but it is very difficult because the population habit is saving money. So printing money can be done as long as not for consumption, not to pay debts, not for imports and the project must be productive and at least layer 12 as well as strict control from the government for the allocation of the use of money.

[CristianOff]

So while I agree with your sentiment I think it still remains to be seen whether the amount being printed really is "adequate".

That's also a good point of view. I mean, we are still at the beggining but from what I see, things are getting better (at least in UK where the automotive industry restarts in early may)
Regarding what you mentioned about effects of covid-19 on Bitcoin, do we have any data related to events that happened in Cyprus when bitcoin skyrocketed? How long did that take I'm wondering.

Right now, it looks like no amount of money printing or interest rate dropping will stimulate the economy into a state of high inflation. The plunge of oil prices and most commodities is ominous. Unprecedented demand for food banks while food commodity prices drop to 2008 levels, also ominous.

Regarding oil prices, the price recovered from negative back to where it was before going below 0. Is that not good enough news to say we are recovering?

You can look for references on modern monetary theory (MMT) initiated by Michael Hudson regarding printing money. According to supporters of the new economic model, Keynesian thought is false knowledge intentionally spread by capitalists so they can capture their wealth. So it is different between what they teach and what the capitalists practice.

According to Michael Hudson, Germany was the country that lost the first world war in 1919 and had to bear the burden of paying all the costs of war to the war-winning country. But in 1933, Germany had begun to fight, even when the Nazi came to power in 1936 Germany became a terrible superpower. Whereas on the other side of the world the United States is experiencing great depression but America became the winner of the second world war. And history is always written by the winner so that the greatness of Germany in building its greatness for 15 years sank and the world was filled with theories from America.

When it lost in the first world war, Germany did not use a gold-based currency. German marks are backed up by work and goods of equal value. So in Germany when the war was the key was printing money and the guarantee was the product. Because when it's all produced for the country, the state pays. Unfortunately at that time printing money was used to create a tool of war so that Germany could invade.

Every country can print money, Japan also adheres to MMT by printing money but inflation does not occur even Japan wants inflation but it is very difficult because the population habit is saving money. So printing money can be done as long as not for consumption, not to pay debts, not for imports and the project must be productive and at least layer 12 as well as strict control from the government for the allocation of the use of money.

What you said here is brilliant and it opens my mind to think even more. What you said at the end regarding japan printing money and saving rather than paying debts,etc. does that mean that if hypothetically speaking
a country prints a few trillions it may not be affected as long as money is not used? Would that not destroy the purpose of money?

Also could a country print a few trillions, make savings on those trillions mandatory and improve its economy / development? (savings go to banks, banks know those savings are mandatory and can't be taken out, they can use money to give more loans)

[buwaytress]

Pretty good analysis I would say, thank you. It somewhat resonates with some of my own thoughts. I definitely think that the US Fed's now unrestricted ability to print infinite money opens the possibility to a 1920s Germany scenario (for us Southeast Asians who were occupied by Japan in the Second World War, we actually refer to the 1940s "banana money" scenario -- you can still buy them easily off flea markets in most countries here), BUT it won't happen because they, as you point out, know how to control the flow and they're actually printing money they've approved to be pushed out (that's mainly stimulus money right now).

It will affect inflation, and it may just cause the debt ceiling to crush the system at some point later on, forcing them to print even more than they should. But for NOW, the here and now, it's not going to destroy the fiat system that Bitcoiners hope for. This system is broken, rotten to the core, swathed in band-aids, but there's too much at stake and too much invested for its players to just give up so soon.

[HeRetiK]

So while I agree with your sentiment I think it still remains to be seen whether the amount being printed really is "adequate".

That's also a good point of view. I mean, we are still at the beggining but from what I see, things are getting better (at least in UK where the automotive industry restarts in early may)
Regarding what you mentioned about effects of covid-19 on Bitcoin, do we have any data related to events that happened in Cyprus when bitcoin skyrocketed? How long did that take I'm wondering.

You mean in 2013? While often touted as catalyst for Bitcoin's growth in 2013 the Cyprian banking crisis seemed to have very little to do with it. At least to me personally the correlation, let alone causality between Bitcoin and Cyprus seemed pretty close to non-existent at best. Of all the events that happened in 2013 / late 2012 (first halving, the first high-profile websites accepting Bitcoin as payment, the advent of ASICs, China, surviving the closure of Silk Road, the crypto security bubble, the first alt coin bubble and what ever else I might have forgotten) I think Cyprus had the least impact on Bitcoin's price. Others might disagree though.

It will affect inflation, and it may just cause the debt ceiling to crush the system at some point later on, forcing them to print even more than they should. But for NOW, the here and now, it's not going to destroy the fiat system that Bitcoiners hope for. This system is broken, rotten to the core, swathed in band-aids, but there's too much at stake and too much invested for its players to just give up so soon.

Also I don't think the utter collapse of the fiat system is all that desirable. While I'd love to see Bitcoin at USD 100k,- and beyond as much as the next guy that will be literally of little value if it barely pays for a piece of bread.

[bitbunnny]

Printing money will get crisis for world economic and bitcoin become good solution how your money value keep touch with higher price without get inflation value. Many moment money is have lower value after several years later and bitcoin keep going on higher price without know anymore with inflation.

That is not going to happen. Not any serious country in the world will print the money to fight the crisis because anyone with any brain at all knows that brings opposite effect.
Fiat money will not disappear and people will not lose faith in it so Bitcoin needs to find its own independent way to be more prosperous, not to count on fiat failure.

[hugeblack]

You looked to it from one side of the equation and did not look at the other side. Printing the money means increasing the quantity supplied, but its effect will not be clear unless accompanied by a change in demand, which is considered frozen due to the repercussions of the pandemic.
Once the freezing ends, you will notice the effect of printing money on many economies.

Therefore, we are in the stage of a health crisis, not an economic one, and therefore it is a mistake to start offering theories about economic problems that have not started yet.

[figmentofmyass]

It will affect inflation, and it may just cause the debt ceiling to crush the system at some point later on, forcing them to print even more than they should. But for NOW, the here and now, it's not going to destroy the fiat system that Bitcoiners hope for. This system is broken, rotten to the core, swathed in band-aids, but there's too much at stake and too much invested for its players to just give up so soon.

and when the house of cards does finally come crashing down (years from now?) the recovery won't be simple or orderly. it probably won't be USD crashing to zero one day, and all value rushing into BTC simultaneously. markets are not rational. there could be absolute chaos for a while. i don't think the world's top reserve currency has ever hyperinflated before, has it? so we could see lots of confusion re price discovery.

bitcoin will rise like a phoenix from the ashes, but i have a feeling it won't play out the way many bitcoin investors expect.

[carter34]

I do not see printing of money to affect bitcoin. But it can help in the increase of demand because when money come into the system, people starts looking at investment to dash into, so bitcoin can increase in demand if money is printed.

[exstasie]

Regarding oil prices, the price recovered from negative back to where it was before going below 0. Is that not good enough news to say we are recovering?

I would look at it more like this: the crash below $0 was a case of zero buy side liquidity at contract expiration. Of course we shouldn't expect oil to stay near or below $0 for any extended period of time.

The real issue is oil is still down 74% for the year, and that reflects the state of the global economy. Trading below $20 is already disastrous for many oil producers but it's the demand shock that caused the crash that is so concerning for the economy at large. What's happening goes much deeper than the oil market.

[Ucy]

I think printing of more money than is required could easily cause inflation if goods and service are scare or production of good and services is slow or low. One of the biggest dangers of printing more this way is when scare/limited resources is regularly acquired by average people who get the printed money or  by those who get very wealthy from the printed money... (especially money printed for people who aren't really working hard or contributing enough.)

In regards to this affecting cryptocurrency price, I guess people don't have excess or alot of money to spend. The lockdown made earning lots of money from their jobs and businesses and having excess to spend on what they feel they don't really need difficult. I guess if they start having the excess/extra money from the money printing, they will likely start spending them on what they feel they don't really need.  
If we had a really flourishing cryptosphere with lots of very decentralized marketplace , businesses, Insurance etc... basically filled with decentralized products/services, it will likely create the need for consumers to spend here, because of the availability of better and safe alternatives in time of crisis and uncertainty.

[buwaytress]

Also I don't think the utter collapse of the fiat system is all that desirable. While I'd love to see Bitcoin at USD 100k,- and beyond as much as the next guy that will be literally of little value if it barely pays for a piece of bread.

Absolutely not. I love me my Bitcoin, and I would love to see it at 6/7 digit values in my lifetime, but I think it's naive for anyone to think a complete collapse of world economy is good for anyone. Besides, if USD collapses, 100k or 1m us dollars won't mean squat.

and when the house of cards does finally come crashing down (years from now?) the recovery won't be simple or orderly. it probably won't be USD crashing to zero one day, and all value rushing into BTC simultaneously. markets are not rational. there could be absolute chaos for a while. i don't think the world's top reserve currency has ever hyperinflated before, has it? so we could see lots of confusion re price discovery.

bitcoin will rise like a phoenix from the ashes, but i have a feeling it won't play out the way many bitcoin investors expect.

I'm not sure, really, not something of a global standard like USD anyway, every other regional or global "standard" has been precious metals and those were always backed physically so no, I don't think we've ever experienced anything like what we're proposing might happen.

But you're right about the market. Economists now understand that all models and past theories fail because investors don't think rationally.

[Ryker1]

Indeed. The main goal of Bitcoin is to be accepted widely or globally and if possible to replace fiat money. Well, regardless of the crisis that the world is going through or no matter how bad the inflation will be after the pandemic government, experts and businessmen will definitely find a way where and how to cope up after down fall in the economy. It has been shown in the history that every country had this experience but most of them were able to sustain. Government, --experts and capitalists may work together and will come up to an idea on how their economy can bounce back.

[abhiseshakana]

What you said here is brilliant and it opens my mind to think even more. What you said at the end regarding japan printing money and saving rather than paying debts,etc. does that mean that if hypothetically speaking
a country prints a few trillions it may not be affected as long as money is not used? Would that not destroy the purpose of money?

Also could a country print a few trillions, make savings on those trillions mandatory and improve its economy / development? (savings go to banks, banks know those savings are mandatory and can't be taken out, they can use money to give more loans)

The lesson from Japan is that a country with a surplus of savings can survive with large public debt because the debt is financed by domestic funding. Funds move from the left pocket to the right pocket, from the private sector to the government. Private bills rise because public debt rises at the same rate.

Japan uses its fiscal deficit according to its needs. So the growth target must base on its fiscal deficit condition. For this reason, relaxation or tightening of the fiscal deficit is adjusted to the target of economic growth. If the economy wants to be driven faster the fiscal deficit will be increased, if the economy is too hot the fiscal deficit will be reduced or even become a surplus.

Negative interest rates are also applied with the aim of spurring loans by making inflation toward the target the Japanese government wants. Negative interest rates have the consequence that all banks that park their money in the Central Bank will get a minus interest or in other words, a deduction is made on their deposits.

In this way, the bank will try to withdraw the money to be circulated or lent to the public at low-interest rates. With that step, people will be tempted to make loans, both for business and consumption needs. In turn, this will drive the wheels of the economy because more money circulation and transactions occur.

Inflation is important for the Japanese economy because it has been more than 20 years for the past two decades the price of production and investment in Japan has continued to fall, as a currency is too strong so that there is a reluctance from its population to spend the money they have. PM Abe with Abenomics disbursed trillions of yen into the Japanese financial market system.

The increase in price alone does not encourage Japanese people to spend more. The nature of Japanese people who like to save plus the average age of Japanese residents who are old makes their lifestyle prefers to save money. Trillions of yen saved by the Japanese people, then used by the government to carry out development with the status as a loan. From this, it can be seen that the largest Japanese loan value does not come from abroad, but comes from the people themselves who do have a hobby of saving. "The nature of the society then makes the yen seen as a safe haven by the world financial industry along with the US dollar

But apparently this savings can be a big problem if only the government has to spend it because the Japanese government sees Japan has almost no great development potential anymore. This is where the government needs new, more aggressive policies so that people want to start taking risks. Either to try or invest.

[el kaka22]

I wish it was that simple . But it is not, the world has to create some money the more people there is plus the more dollar is lost somewhere else and the more dollar stuck somewhere.

So, when you are making this calculation you are not just making 1 million and print another one million, you have to consider the initial one million dollars and see if the population is the same, if the population grew that million is not enough anymore, you have to check if there is any dollars lost, I know this will be a bad example but just think of a money being washed and ruined burned and ruined, those are bad examples but you get what I am trying to say and lastly but most importantly people who have dollars that do not spend it at all, so that money exists somewhere but it is stuck and not moving at all so we could consider it not on the market. When you take all of that into consideration printing doesn't suddenly make it go up, sure it makes it a bit but not at that level.