China enters deflation as recovery flops and demand falling

[stompix]

Told ya so moment 

China opening was a flop, if we're heading to deflation, what about Bitcoin?

Everyone who follows the news knows what happened today,  China has entered deflation!



Further reading, if anyone cares
https://www.nytimes.com/2023/08/09/business/china-economy-inflation.html
https://www.reuters.com/world/china/chinas-consumer-prices-swing-into-decline-deflation-risks-build-2023-08-09/

Now, you can't even cram in a whole topic the implication of deflation, why it's not good either, the speculation on how this will affect everything, and most crucially since we're on Bitcointalk, what's in for Bitcoin so less in just a post.
So making this as short as possible
- China is the first G20 to slip into deflation since Japan
- Despite pumping trillions into the economy since February the consumption is not picking pace but going down
https://www.scmp.com/business/article/3210562/china-pumps-us121-billion-economy-biggest-one-day-cash-injection-spur-post-covid-growth
each month
https://www.wsj.com/articles/china-cuts-rates-to-prop-up-flagging-recovery-6fe3ec72
- Exports and imports are going down as manufacturing is also contracting

- there is no demand for goods, the law of economics take over, price go down, people see prices going down they stop buying since they think it will be cheaper accelerating the spiral

The important thing, since inflation makes your wallet bleed some think that deflation is good, It might be temporary for your own household but long term it causes damages beyond those caused by inflation. Assume you're a business owner and you sell stuff, if people stop buying, is it good for you? Assume you're a factory manager, with no orders coming, is that good for you and the people employed? With no demand for your services, is it really good when the price of bread falls but you're not making any money cause you have no customers?
Normally I won't have to link to Wikipedia articles but for those who didn't read it, here are two key examples of what deflation can do:
- the Great Depression in the US in the 30's
- Japan lost decades in the 90's

Now fast forward, if the contagion grows and it spreads to countries that are currently at 3-5% inflation and going down, like in the US and Europe, what will be in this for Bitcoin?

Bitcoin was supposed to be a p2p electronic cash system that would allow you to transfer and keep your money without the need for a third party with the finite supply ensuring it wouldn't be affected by issues plaguing the fiat money printing system.
With the price gradually taking over and more and more being interested in the returns you can get for just holding coins, and a shield against rampaging inflation, would this change in a prolonged period of deflation? With prices everywhere falling down would the majority still be interested in buying and holding an asset that temporarily would be stripped of one of its current selling points?

I know this is a bit more of speculation but since it heavily relies on events in the world economy I think it's a discussion that goes hand in hand with economics not just speculation.

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[Dr.Bitcoin_Strange]

Now fast forward, if the contagion grows and it spreads to countries that are currently at 3-5% inflation and going down, like in the US and Europe, what will be in this for Bitcoin?

Bitcoin was supposed to be a p2p electronic cash system that would allow you to transfer and keep your money without the need for a third party with the finite supply ensuring it wouldn't be affected by issues plaguing the fiat money printing system.
With the price gradually taking over and more and more being interested in the returns you can get for just holding coins, and a shield against rampaging inflation, would this change in a prolonged period of deflation? With prices everywhere falling down would the majority still be interested in buying and holding an asset that temporarily would be stripped of one of its current selling points?

I know this is a bit more of speculation but since it heavily relies on events in the world economy I think it's a discussion that goes hand in hand with economics not just speculation.

Well, I would say that let's see how long it can last and how well it spreads to other countries. I know that sometimes the unexpected happens, but with the economic systems of some countries being so down, I really don't see deflation taking place any time soon. But if it spreads so fast that it hits the US and Europe, then, as it is, many people are going to sell their Bitcoin because the price will definitely drop. Investors are going to be selling off, and if the pressure is too much, the price will drop. But again, @stompix, I am still wondering: if this happens, how long will it last? Perhaps not for ever, so Bitcoin will not die out; it will only suffer its recovery until the period is over, no matter how long it's going to last.
   
Again, the inflation rate in my country as of 2018 was 10%, but according to the CPI (Consumer price Index), the inflation rate now is 22.79%, which is an 12.79% increase from 2018, and I know it's even going to keep increasing over time. So, I will just sit and wait to see what happens. Bitcoin will soar through, even if the deflation spreads across other countries like the US, Europe, and other countries with large economies.

[franky1]

goods deflation is good. its when they start lowering minimum wage or reducing salaries that you then see TRUE deflation that harms people

the silly thing is we see what western news is calling chinas deflation all the time.. most retailers call out "end of season sales", 'clearance sales'

whats not highlighted is the start of 2021 was "greedflation" where producers raised their wholesale costs by 14% and so they made profit and also excess stock......
.. which they are now selling the excess stock at 5% below 2021 prices this is standard practice

overall 2 year average is still profitable

it would only be true deflation/news worthy economically when it starts affecting peoples wages

[adaseb]

Even if we get deflation in most G7 countries, prices will never go back to 2019 levels. Way too much money was printed.

We might get a few negative prints but overall the costs compared to 2019 will be in the double digits anyways. Most people don’t realize that even with a recession we aren’t going to get back to affordable goods.

[Ucy]

.....

Bitcoin was supposed to be a p2p electronic cash system that would allow you to transfer and keep your money without the need for a third party with the finite supply ensuring it wouldn't be affected by issues plaguing the fiat money printing system.
With the price gradually taking over and more and more being interested in the returns you can get for just holding coins, and a shield against rampaging inflation, would this change in a prolonged period of deflation? With prices everywhere falling down would the majority still be interested in buying and holding an asset that temporarily would be stripped of one of its current selling points?

... .

Well, deflation is not the only selling point for Bitcoin. There are others, like the  ability to use it globally, decentralization, self custody, censorship resistant, privacy-preserving, permissionless, etc
The other selling points will become more relevant when the need arises, for example when people need to send/recieve money globally as global fiat currencies like usd becomes difficult or impossible to use. The overall selling point is that Bitcoin is freedom currency/system and will always be very attractive to freedom loving people. And the selling points which are its ideals are strong fundamentals that will always give it  stronger value and higher demand over fiat currencies especially when people understand their benefits... Just as organic food are more valuable/expensive than junk when people know their values.
So, the whole truth about Bitcoin needs to spread globally and you wouldn't need to worry about price deflation in certain countries.

[kryptqnick]

Deflation isn't good for the economy, but mild inflation can be better than high inflation, for example, and intuitions about the negative impact of deflation and the positive impact of inflation are often questionable. For example, it's assumed that if the price gets a bit lower over time, people will wait and won't buy stuff, but one could easily counterpoint that if people want or need something today, they'll still buy it today, simply because they don't want to wait.
Moreover, Yuan dipped a bit into the deflation area at the end of 2020 and the beginning of 2021, so it's possible that something similar will happen this time around as well.
Dr.Bitcoin_Strange noted that if deflation spreads, people will start selling BTC because its price will drop. I'm not so sure about that because Bitcoin can easily increase in value well above the deflation rate and grow despite what's going on with top fiat currencies.

[franky1]

Deflation isn't good for the economy, but mild inflation can be better than high inflation, for example, and intuitions about the negative impact of deflation and the positive impact of inflation are often questionable. For example, it's assumed that if the price gets a bit lower over time, people will wait and won't buy stuff, but one could easily counterpoint that if people want or need something today, they'll still buy it today, simply because they don't want to wait.

people dont wait. they notice they can get more for their money and stock up

Moreover, Yuan dipped a bit into the deflation area at the end of 2020 and the beginning of 2021, so it's possible that something similar will happen this time around as well.
Dr.Bitcoin_Strange noted that if deflation spreads, people will start selling BTC because its price will drop. I'm not so sure about that because Bitcoin can easily increase in value well above the deflation rate and grow despite what's going on with top fiat currencies.

deflation of bitcoin has caused bitcoins price to increase over the last 14 years. so dont worry about bitcoin prices tumbling

what happens in reality is as long as wages do not decrease(has not happened yet) people get to buy more goods and have more spare cash to buy other things for the same income. thus they buy more items, including investing more

china last month did not decrease its minimum wage and wont change things +/- again until next years budget..

Minimum wages have been revised in Shanghai, China, effective 01 July 2023. The minimum wages are increased from CN¥2,590.00 to CN¥2,690.00 per month and CN¥23.00 to CN¥24.00 per hour.

which shows people are getting more income and more products for that income.. a double win. meanwhile businesses had their last year greedflation of 14% extra profit and now doing an out-of-season clearance sale of -5% which is normal business range for seasonal goods provision whilst remaining in profit.

[icalical]

A mass layoff has been done by Chinese companies that have branch office in my country since May this year, most the workers are software developer and customer service who are working remotely, since the salary in here is relatively lower than in China. I guess if a country as big as China are having deflation it will affect other country too.

[EarnOnVictor]

Thanks for this piece. As I tell people, deflation is worse than inflation, only that people don't often witness this and believe they will spend less and still have a good standard of living only. As these are true, it's also bad for the economy as it would not grow as you've rightly explained. It means the inflation gauge is negative and continuously decreasing or stable below 0 with an inverse order in demand and supply where more supply lingers. It could lead to unemployment since less labour is required, and it encourages too much savings since you pay less for goods and services and might keep more in anticipation of more devalued products and services. This will naturally cause an increase in interest rates which the government will begin to fight through rate cuts and other measures to reverse the trend.

Strangely, this often happens as a result of too good policies and economic prosperity without a proper check by the government, good things at times backfire.

- Despite pumping trillions into the economy since February the consumption is not picking pace but going down

Pumping money has to be clarified under an economy as to what area the money goes to and in what form. I don't see how the pumping of money into the economy in general context would help when a country is witnessing an iota of deflation, it would rather worsen/aggravate it except you actually meant pumping in terms of "printing of money."

Assume you're a business owner and you sell stuff, if people stop buying, is it good for you? Assume you're a factory manager, with no orders coming, is that good for you and the people employed? With no demand for your services, is it really good when the price of bread falls but you're not making any money cause you have no customers?

First, to buttress your point on the shop owners' narration, what if they've stocked for what would last for months at a higher price and deflation forced them to sell out at a lower price? Also, I understand your plight here, but you seem to overestimate deflation, it doesn't translate to no patronage as you make it look, but less patronage than normal.

Now fast forward, if the contagion grows and it spreads to countries that are currently at 3-5% inflation and going down, like in the US and Europe, what will be in this for Bitcoin?


Bitcoin was supposed to be a p2p electronic cash system that would allow you to transfer and keep your money without the need for a third party with the finite supply ensuring it wouldn't be affected by issues plaguing the fiat money printing system.
With the price gradually taking over and more and more being interested in the returns you can get for just holding coins, and a shield against rampaging inflation, would this change in a prolonged period of deflation? With prices everywhere falling down would the majority still be interested in buying and holding an asset that temporarily would be stripped of one of its current selling points?

This can't be a contagion in my view as China doesn't have economic similarities with the countries they share borders with. And those which have administrative authorities like Hong Kong and Macao don't have the same economic similarity. Even if they do, the effect can't reach further countries.

As for Bitcoin, I've personally said that it depends on how people view it. As someone that is more economically and analytically inclined, I view it differently. Contrary to the general belief that Bitcoin is a good hedge against inflation, I don't believe such, the studies and conclusions on Bitcoin are still premature, it needs more time for the world to be certain of what it really is as it at times behaves like risk-on and risk-off asset alike but more risk-on in nature. Why did it fall when inflation has increased in recent years? Bitcoin is an asset, we should view it as one, and we should invest in it in the view of good returns only like other investments. Who knows if that would help our finances? This is what people mistake for an inflation peg. Can't we invest and earn through another asset? Do they then automatically peg inflation? So, whether it's inflation or deflation season, when the bull run of Bitcoin is active, you make money. And when the bearish season of Bitcoin comes, you will lose money, period!

[stompix]

Even if we get deflation in most G7 countries, prices will never go back to 2019 levels. Way too much money was printed.

I was just reading how Portugal's basic basket has entered deflation yoy, it's -0.3% cheaper than August 2022
https://www.deco.proteste.pt/familia-consumo/orcamento-familiar/noticias/precos-estao-aumentar-alimentos
What makes you think it's impossible to reach 2021 and 2020 levels?
Lumber prices jumped to 1500, now they are barely 6% higher than in August 2018.
If people stop spending, you can print quadrillions, it doesn't generate inflation,  see the whole recent history of Japan.

This can't be a contagion in my view as China doesn't have economic similarities with the countries they share borders with. And those which have administrative authorities like Hong Kong and Macao don't have the same economic similarity. Even if they do, the effect can't reach further countries.

Contagion can spread through the price of goods and the price of real estate easily!

If China has no way out of this with manufacturing going down they will need to start selling at dumping prices not making a profit or even losing a bit per product but to keep the whole sector afloat, Chinese real estate developers are heavily exposed on the western market, they've invested billions there and if they collapse in China they will need to sell assets in Europe and North America to finance the deficit back home or face a firing squadron, that again will trigger a domino effect over the inflated price we're currently having here.
Eastern Europe had zero similarities with the US back in 2008, with nothing in common other than also having banks and standing on two feet yet we got struck even worse than them at some point.

[Dr.Bitcoin_Strange]

deflation of bitcoin has caused bitcoins price to increase over the last 14 years. so dont worry about bitcoin prices tumbling

what happens in reality is as long as wages do not decrease(has not happened yet) people get to buy more goods and have more spare cash to buy other things for the same income. thus they buy more items, including investing more

Maybe I misunderstood the whole deflation stuff, and I bet I need a bit clarification @franky1. I thought if the deflation takes place and spreads across the other countries, then the value of the country's fiat currency will increase and they can buy more goods and services with the money, and since investors know that their fiat currency will increase in value, I thought 🤔 💭 they're (investors) going to have to sell their Bitcoin holdings and perhaps stack some fiat instead. So that If the fiat value shoots up, then they can buy more Bitcoin with it. I don't get it; I just need the clarification.

[Franctoshi]

Even if we get deflation in most G7 countries, prices will never go back to 2019 levels. Way too much money was printed.

We might get a few negative prints but overall the costs compared to 2019 will be in the double digits anyways. Most people don’t realize that even with a recession we aren’t going to get back to affordable goods.

The deed is already done during the 2020 over printing of money which various economies are now feeling the snow ball effect on their economy and I agree with you that there is no way price of goods and services would return to normal as the government will still continue their money printing but rather this deflation will be a brief relief of pressure on the economy.

[Flexystar]

So does it mean that every country has their own economic sphere where they can control or at least change the course of its inflation even if the worlds leading countries are still under heavy influence of the inflation? I mean why China? Why not America or some other nation is able to do the same and bring down the inflation once and for all? What china has done that others are not able to do it?

I am also shocked that China like country where labor, bulk production, heavy supply chains everything is so much that they would be the last to recover from the current inflation. But today I am seeing exactly opposite effect on everything.

[BIT-BENDER]

A mass layoff has been done by Chinese companies that have branch office in my country since May this year, most the workers are software developer and customer service who are working remotely, since the salary in here is relatively lower than in China. I guess if a country as big as China are having deflation it will affect other country too.

Definitely, if china is having deflation or any other economic/financial situation there are many countries this would affect negatively, China has created strong ties/relationship with several countries, has giving out loans to several other countries in huge amounts I am from one of those countries they have sent loan to.

China has also invested in other countries so certainly if they have any deflation or financial issue it would definitely affect other countries.

[Captain Corporate]

The logic of "if nobody buys from you, is that good" could fail when you drop the prices. You may think, "but everything is so expensive, if I drop the prices then how could I afford anything?" but instead of selling 100 of something with 1 dollar profit, you are going to sell 2000 of the same thing with 20 cent profit and you are going to make more profit that way. This is the way it should be, at least its a good way to stop deflation hurting you. There is at least a formula and an idea that makes you profit somehow with deflation, there isn't any for inflation, you just increase the price because resource prices go up, otherwise you make a loss if you drop your price as well, at deflation there isn't any of that, resource sellers for your product would be glad to have a buyer, even make a discount maybe.

[Unbunplease]

The logic of "if nobody buys from you, is that good" could fail when you drop the prices. You may think, "but everything is so expensive, if I drop the prices then how could I afford anything?" but instead of selling 100 of something with 1 dollar profit, you are going to sell 2000 of the same thing with 20 cent profit and you are going to make more profit that way. This is the way it should be, at least its a good way to stop deflation hurting you. There is at least a formula and an idea that makes you profit somehow with deflation, there isn't any for inflation, you just increase the price because resource prices go up, otherwise you make a loss if you drop your price as well, at deflation there isn't any of that, resource sellers for your product would be glad to have a buyer, even make a discount maybe.

Not everything can be reduced in price. Buyers will get used to low prices and will not accept an increase (if necessary). It is better to offer various bonuses to motivate buyers to choose one company or another. Deflation is not good either, and neither is inflation.

[hatshepsut93]

Bitcoin was supposed to be a p2p electronic cash system that would allow you to transfer and keep your money without the need for a third party with the finite supply ensuring it wouldn't be affected by issues plaguing the fiat money printing system.
With the price gradually taking over and more and more being interested in the returns you can get for just holding coins, and a shield against rampaging inflation, would this change in a prolonged period of deflation? With prices everywhere falling down would the majority still be interested in buying and holding an asset that temporarily would be stripped of one of its current selling points?

I'm not sold on the idea that Bitcoin's performance was backed by inflation. Maybe it was the narrative, but the narrative and true cause of market movement might not be the same. Maybe Bitcoin was growing simply because new money was buying more, while hodlers refused to sold.

So I can totally see Bitcoin growing even if global economy enters deflation. Maybe deflation will actually slow down this growth, but the upward-driving forces would still be stronger.

[Fortify]

Now fast forward, if the contagion grows and it spreads to countries that are currently at 3-5% inflation and going down, like in the US and Europe, what will be in this for Bitcoin?

Bitcoin was supposed to be a p2p electronic cash system that would allow you to transfer and keep your money without the need for a third party with the finite supply ensuring it wouldn't be affected by issues plaguing the fiat money printing system.
With the price gradually taking over and more and more being interested in the returns you can get for just holding coins, and a shield against rampaging inflation, would this change in a prolonged period of deflation? With prices everywhere falling down would the majority still be interested in buying and holding an asset that temporarily would be stripped of one of its current selling points?

I know this is a bit more of speculation but since it heavily relies on events in the world economy I think it's a discussion that goes hand in hand with economics not just speculation.

It was pretty much inevitable to see China end up like this, what goes up must come down. The Chinese communist party did a great job when they were opening up and using the (relatively) free market model which brought many millions of people out of poverty and gave them jobs. However it seems like they have switched into reverse gear now under Xi Jinpig, instead of focusing on economic growth the dictator is deciding that he wants to squeeze ultimate control again and is probably lining up to invade Taiwan at some point in the future, but as your graphs show - this is leading into disastrous territory. The way their government is lurching from targeting one sector to the next and the fact that the rules can change overnight, shows that they are a completely unstable business environment which scares off long term investment.

[serveria.com]

I really don't see deflation taking place any time soon. But if it spreads so fast that it hits the US and Europe, then, as it is, many people are going to sell their Bitcoin because the price will definitely drop. Investors are going to be selling off, and if the pressure is too much, the price will drop. But again, @stompix, I am still wondering: if this happens, how long will it last? Perhaps not for ever, so Bitcoin will not die out; it will only suffer its recovery until the period is over, no matter how long it's going to last.

Weird, why do you think Bitcoin price will drop because of deflation? Could you elaborate on that? Also not clear to me why Bitcoin investors should all of a sudden sell their holdings at a loss? 

[Dr.Bitcoin_Strange]

Weird, why do you think Bitcoin price will drop because of deflation? Could you elaborate on that? Also not clear to me why Bitcoin investors should all of a sudden sell their holdings at a loss?  

Read my last quote   .
 you can explain to me if you know better, I mean no offense, perhaps we all learn new things every day.