Where can we see deflation being more contributive than inflation ?

[jambola2]

Can someone explain to me :-
1- Why mild inflation (2.5%) is beneficial to an economy ? Has been answered repeatedly
2- If mild inflation is beneficial , shouldn't Bitcoin , as a deflationary currency , be counter-intuitive ? I'm looking for more current examples where despite deflation in a field (The same amount of fiat buying more goods), consumer spending is high.

One case submitted is :-

It means, that the same laptop you would have bought in 2004 for 500$ now you can buy for 50$, or you can buy a 10 times faster laptop for the same 500$. The purchasing power of your dollar increased for the same technological level, or you can get a 10 times better technological product for the same price!

[leezay]

That is the current assumption from the academic type.

I wouldn't called mild inflation is needed any more than mild deflation is needed.

[jjdub7]

It encourages people to spend, buying the goods and services that in turn give others in the economy jobs and crank the whole engine onward.

[zimmah]

It's what the FED wants you to believe to have an excuse for printing unlimited amounts of dollars.

[Erdogan]

It is not needed - and we are going to prove it.

[beatljuice]

There are a lot of factors. And it would require a lot of reading to understand.

I think the biggest reason that deflation is scary to the mainstream is because of its relation to economic collapse. In recent history the only time deflation has been seen in an economy was during a big colapse, so everyone thinks it correlates. Maybe it does, maybe it doesn't. If you go along with the Keynesian economics you tend to be very afraid of deflation's effects. if you believe in the Austrian School of economics you know that deflation is just an adjustment to market demand, and is perfectly reasonable.

[Justine]

There are a lot of factors. And it would require a lot of reading to understand.

I think the biggest reason that deflation is scary to the mainstream is because of its relation to economic collapse. In recent history the only time deflation has been seen in an economy was during a big colapse, so everyone thinks it correlates. Maybe it does, maybe it doesn't. If you go along with the Keynesian economics you tend to be very afraid of deflation's effects. if you believe in the Austrian School of economics you know that deflation is just an adjustment to market demand, and is perfectly reasonable.

In that sense, Austrian is more accurate than Keynesian.

[jjdub7]

It's what the FED wants you to believe to have an excuse for printing unlimited amounts of dollars.

The Fed doesn't print unlimited amounts of dollars for shits and giggles.  Currently, its being done in the QE program with the hopes that injecting liquidity will revive the cancerous mortgage backed securities underpinning the housing market.  However, in order to do this, they have to drop interest rates to near zero, meaning banks are then less likely to give out credit.

The housing market won't reinflate though, meaning that yes, this money they're printing will eventually just translate into inflation.  You disagree, Mr. Bernanke and Ms. Yellen?  Please tell me who the next generation of homebuyers will be, because everyone I know in their 20s is swamped by student debt, and oh right - banks aren't lending.

[jambola2]

So, basically Bitcoin is going against the widely believed principal that a small amount of inflation is required to expedite economic growth ?

Can somebody give me more reasons , or give me a decent reading list to why a deflationary system is superior ?
I can already see negative effects of it , as most people already don't spend much of their Bitcoin due to their perception of it primarily as an investment.

[jjdub7]

So, basically Bitcoin is going against the widely believed principal that a small amount of inflation is required to expedite economic growth ?

Can somebody give me more reasons , or give me a decent reading list to why a deflationary system is superior ?
I can already see negative effects of it , as most people already don't spend much of their Bitcoin due to their perception of it primarily as an investment.

Japan from the 90s til now.  Read up on the current economic situation, Shinzo Abe's plan, and the actions of the Bank of Japan.

Edit:  And also, its not necessarily going against the inflation-driven theory of growth, its just a hedge against excessive growth, functioning the same way as gold in these circumstances.

When the Fed started printing money with QE (it had never been tried before), they essentially put a price floor on mortgage backed securities (which had become near-worthless with people defaulting on their mortgages once there were no buyers left in the bubble).  Look at this chart of the gold price from the past 15 years - as a hedge, the price skyrockets in times where people lose faith in the dollar/fiats (especially when the credit ratings agencies begin downgrading the US govt's credit rating, because if that goes to zero, well...its all over).

[jjdub7]

And the reason it skyrockets is one of the same reasons BTC has value - it can be slipped under capital controls and changed into a different country's currency if people were to move their family or just their money elsewhere.  Essentially it functions as an inflation hedge/floating currency, and because no govt has had control of its supply since the abandonment of the gold standard, it makes a very attractive asset if you're betting against the dollar/another fiat.

[lihuajkl]

Mild inflation will push spending and investing.People isn't willing to keep fiat to lose value.  They prefer to spend or invest something to earn more fiat.It will increase the commence activities and revive the economy.

[zimmah]

Mild inflation will push spending and investing.People isn't willing to keep fiat to lose value.  They prefer to spend or invest something to earn more fiat.It will increase the commence activities and revive the economy.

the reason the economy needs reviving in the first place is because the economy demands constant consumption.

The earth is not made for constant exponential increase in demand. We are already past the limit the earth can sustainably provide in resources, the current way the economy works will make the earth unsuitable to sustain life, and it's already causing unnecessary spread of epidemics and famine.

great to know the economy is working for the 0.01%, but it doesn't work for the other 99.99%

[odolvlobo]

Inflation is a form of subjugation -- a way to ensure that the poor remain poor. The poor keep most of their wealth in the form of currency, and that wealth is destroyed by inflation. The wealthy keep most of their wealth in assets, and are not affected by inflation.

It is no surprise that the bankers running the Fed say that inflation is necessary. Who are benefiting the most from inflation right now? Owners of real estate and corporations. Everyone else has to suffer from rising food and energy prices and watch their bank accounts lose value.

[CoinsCoinsEverywhere]

In a normal economy, it's pretty much impossible to have no inflation or deflation, unless you're constantly mucking with the currency supply for that economy.  So that basically leaves you with a choice between inflation, which theoretically leads to an upward spiral in prices and spending (if xyz is going to cost more tomorrow, I should buy it today while it's cheaper), or deflation, which leads to a downward spiral in prices and spending (if xyz is going to cost less tomorrow, I'll wait until later to buy it).  A little deflation now and then can be ok, but it's easy for it to get out of control.

[CoinsCoinsEverywhere]

Inflation is a form of subjugation -- a way to ensure that the poor remain poor. The poor keep most of their wealth in the form of currency, and that wealth is destroyed by inflation. The wealthy keep most of their wealth in assets, and are not affected by inflation.

It is no surprise that the bankers running the Fed say that inflation is necessary. Who are benefiting the most from inflation right now? Owners of real estate and corporations. Everyone else has to suffer from rising food and energy prices and watch their bank accounts lose value.

I think subjugation is a broader issue.  It doesn't matter whether you have inflation or deflation.  The rich will use either to their advantage.  In a deflationary scenario, the poor will still remain poor and will probably get poorer because, as a whole, they're the first ones to lose their jobs.

[IIOII]

His answer was interesting from an engineering point of view (I am an EE).  He said that models show that attempting to match the supply of money exactly to the demand leads to an unstable system.  In other words we need either a small amount of inflation or a small amount of deflation in order to have a stable system.  This made sense to me from a system point of view.

That seems to be a very mundane explanation and is insightful at the same time...

The reason they use inflation instead of deflation is given above:  it spurs consumption and therefore economic growth.

Actually growth produced from inflation is artificial growth, because it is not driven by necessities but by the expectation/fear of losing wealth. Therefore it can not be sustainable longterm and wastes resources.

I hope Bitcoin will prove that the doctrine of inflation-induced growth is wrong.

[jbrnt]

Mild inflation encourages people to invest and spend money on what they need, because if you don't, you money looses purchasing power. A health economy needs people to spend money to keep everyone employed.

From the FED's point of view, they also need a mild positive inflation to give room for a positive interest rate. If inflation is too low, there is little room for interest rate to throttle exchange rate, gdp growth, unemployment, lending... and so on.

[BitchicksHusband]

It's what the FED wants you to believe to have an excuse for printing unlimited amounts of dollars.

The Fed doesn't print unlimited amounts of dollars for shits and giggles.  Currently, its being done in the QE program with the hopes that injecting liquidity will revive the cancerous mortgage backed securities underpinning the housing market.  However, in order to do this, they have to drop interest rates to near zero, meaning banks are then less likely to give out credit.

The housing market won't reinflate though, meaning that yes, this money they're printing will eventually just translate into inflation.  You disagree, Mr. Bernanke and Ms. Yellen?  Please tell me who the next generation of homebuyers will be, because everyone I know in their 20s is swamped by student debt, and oh right - banks aren't lending.

My niece and her husband just bought a house (she's 23 I think).  So there you go.  Maybe it's because she chose NOT to go to college that she can afford it.

[zimmah]

Inflation is a form of subjugation -- a way to ensure that the poor remain poor. The poor keep most of their wealth in the form of currency, and that wealth is destroyed by inflation. The wealthy keep most of their wealth in assets, and are not affected by inflation.

It is no surprise that the bankers running the Fed say that inflation is necessary. Who are benefiting the most from inflation right now? Owners of real estate and corporations. Everyone else has to suffer from rising food and energy prices and watch their bank accounts lose value.

indeed, assets make money

people say money creates money, but it's the assets that make money. And only the rich have the money for proper assets (and they know which assets to buy in the first place).

Bitcoin is one of the few assets that is available for the masses, and it allows for investing it as well to even get interest on bitcoins.

In a normal economy, it's pretty much impossible to have no inflation or deflation, unless you're constantly mucking with the currency supply for that economy.  So that basically leaves you with a choice between inflation, which theoretically leads to an upward spiral in prices and spending (if xyz is going to cost more tomorrow, I should buy it today while it's cheaper), or deflation, which leads to a downward spiral in prices and spending (if xyz is going to cost less tomorrow, I'll wait until later to buy it).  A little deflation now and then can be ok, but it's easy for it to get out of control.

people will buy things when they need it, which is much better because it prevents buying for 'wants' and encourages buying for 'needs'

which is much better for the environment in the end, and it might reduce greed.

A consumption driven society like we have now is very bad for many reasons. Ever heard of planned obsolescence? That certainly won't happen in an deflationary system.

Inflation encourages wasteful behavior.

Mild inflation encourages people to invest and spend money on what they need, because if you don't, you money looses purchasing power. A health economy needs people to spend money to keep everyone employed.

From the FED's point of view, they also need a mild positive inflation to give room for a positive interest rate. If inflation is too low, there is little room for interest rate to throttle exchange rate, gdp growth, unemployment, lending... and so on.

why is saving up bad? Why should you buy something you don't need, just to boost the economy?

Why should everyone have full-time jobs, while we are theoretically advanced enough to have machines do almost all of our work, while we can focus on art, science, and recreation? And actually do something useful with our lives instead of wasting the good parts of our lives working for a 'boss' like we are owned by someone like a fucking dog? Wouldn't you rather actually travel the world and spend time with your friends and family than having to do mindnumbing tasks so that someone you don't even really know makes a shit ton of money from the work you do?