Inflation supports economic growth. Prove otherwise in this thread!

[ronskii]

I have been always taught that slight inflation is good. I saw people pointing out 100 year graph of USD always having slight inflation. It makes sense, it makes a little urge for people to spend.
But I believe that also deflationary system can work. People will still buy things they need, although not as much.. Causing joblessness etc 

If possible to, can you please somehow prove that deflationary financial system can be sustainable aswell?

[knickerbacher]

Cash-induced inflation disrupts the production structure and redistributes wealth so that capital flows into enterprises that would otherwise be unsustainable without said inflation. When these enterprises begin to take advantage of inflation, which usually comes in the form of direct subsidies or cheap credit, they expand exponentially. They go regional, national, international, and all the while they are hiring more people. When the cheap money stops flowing, those inflation-dependent enterprises will of course collapse, and all of the people working for those enterprises will be out of a job. In addition to disrupting the production structure, inflation stimulates demand and thereby increases prices. So, when the credit-addicted businesses fail and all their employees are out of a job, demand suddenly decreases because they can't afford to buy anything. As a result, prices must drop for the remaining enterprises to stay in business.

As for deflation, it can be both good or bad. It is good when the purchasing power of money is increasing because prices are going down as a result of innovation and competition. But it is harmful when it is caused by a drop in aggregate demand-- which is generally brought about because of the unemployment caused by central banks' inflationary policies-- or when a central bank/government deliberately contracts the supply of money so that the demand for money is higher than the available stock of money.

[lyth0s]

Inflation is good for borrow's since you pay the money back with dollars that are not worth as much and it hurts people with savings. Deflation is good for creditors and people with savings as their dollars are worth more tomorrow than they are worth today.

Some small inflation can be good, but when you look at how acutely the monetary base has skyrocketed, this is a problem.

http://www.geekcipher.com/technology/bitcoin-vs-us-dollar-in-retaining-value/

^^First graph on that page

[ronskii]

Inflation is good for borrow's since you pay the money back with dollars that are not worth as much and it hurts people with savings. Deflation is good for creditors and people with savings as their dollars are worth more tomorrow than they are worth today.

Some small inflation can be good, but when you look at how acutely the monetary base has skyrocketed, this is a problem.

http://www.geekcipher.com/technology/bitcoin-vs-us-dollar-in-retaining-value/

^^First graph on that page

http://www.slate.com/blogs/moneybox/2012/08/03/the_monetary_base_is_irrelevant.html

[xhomerx10]

I have been always taught that slight inflation is good. I saw people pointing out 100 year graph of USD always having slight inflation. It makes sense, it makes a little urge for people to spend.
But I believe that also deflationary system can work. People will still buy things they need, although not as much.. Causing joblessness etc 

If possible to, can you please somehow prove that deflationary financial system can be sustainable aswell?

 Come on man.  We're not going to write your economics thesis for you for free...

[beatljuice]

Cash-induced inflation disrupts the production structure and redistributes wealth so that capital flows into enterprises that would otherwise be unsustainable without said inflation. When these enterprises begin to take advantage of inflation, which usually comes in the form of direct subsidies or cheap credit, they expand exponentially. They go regional, national, international, and all the while they are hiring more people. When the cheap money stops flowing, those inflation-dependent enterprises will of course collapse, and all of the people working for those enterprises will be out of a job. In addition to disrupting the production structure, inflation stimulates demand and thereby increases prices. So, when the credit-addicted businesses fail and all their employees are out of a job, demand suddenly decreases because they can't afford to buy anything. As a result, prices must drop for the remaining enterprises to stay in business.

As for deflation, it can be both good or bad. It is good when the purchasing power of money is increasing because prices are going down as a result of innovation and competition. But it is harmful when it is caused by a drop in aggregate demand-- which is generally brought about because of the unemployment caused by central banks' inflationary policies-- or when a central bank/government deliberately contracts the supply of money so that the demand for money is higher than the available stock of money.

This is good. Don't get scared away by the nuts like me. Keep posting!

[beatljuice]

Inflation is good for borrow's since you pay the money back with dollars that are not worth as much and it hurts people with savings. Deflation is good for creditors and people with savings as their dollars are worth more tomorrow than they are worth today.

Some small inflation can be good, but when you look at how acutely the monetary base has skyrocketed, this is a problem.

http://www.geekcipher.com/technology/bitcoin-vs-us-dollar-in-retaining-value/

^^First graph on that page

http://www.slate.com/blogs/moneybox/2012/08/03/the_monetary_base_is_irrelevant.html

The Slate article is interesting but doesn't say anything about the future. What happens when one of those giant banks that's holding all that fiat gets in trouble again and starts using it?

[Ibian]

Inflation is a necessary component of usury. If we used a deflationary system the banks as we know them could not exist.

Inflation is good for banks, deflation is good for everyone else.

[Erdogan]

Cash-induced inflation disrupts the production structure and redistributes wealth so that capital flows into enterprises that would otherwise be unsustainable without said inflation. When these enterprises begin to take advantage of inflation, which usually comes in the form of direct subsidies or cheap credit, they expand exponentially. They go regional, national, international, and all the while they are hiring more people. When the cheap money stops flowing, those inflation-dependent enterprises will of course collapse, and all of the people working for those enterprises will be out of a job. In addition to disrupting the production structure, inflation stimulates demand and thereby increases prices. So, when the credit-addicted businesses fail and all their employees are out of a job, demand suddenly decreases because they can't afford to buy anything. As a result, prices must drop for the remaining enterprises to stay in business.

As for deflation, it can be both good or bad. It is good when the purchasing power of money is increasing because prices are going down as a result of innovation and competition. But it is harmful when it is caused by a drop in aggregate demand-- which is generally brought about because of the unemployment caused by central banks' inflationary policies-- or when a central bank/government deliberately contracts the supply of money so that the demand for money is higher than the available stock of money.

Totally correct. Glitters.

[zimmah]

No it does not, economic growth is caused by increased production, not increased money supply

Yes you earn more money, but inflated money, so in effect you earn less, it only looks more.

It's a scam.

[Harley997]

Inflation is a necessary component of usury. If we used a deflationary system the banks as we know them could not exist.

Inflation is good for banks, deflation is good for everyone else.

Inflation is actually good for anyone who borrows money as it is now cheaper, in terms of effort, to pay back the loan. The opposite is true for people who hold assets as their assets are now worth less. Since banks lend money inflation is actually bad for banks.

Moderate amounts of inflation provide people an incentive to not put off purchases an undue amount of time.

[Ibian]

Deflation gives incentive to save. Less loans mean less debt and less slavery. And inflation is caused by lending, the extra money from interest is where money printing comes from. It does not hurt banks at all, on the contrary, it hurts everyone who does not have the ability to print money.

[Harley997]

Deflation gives incentive to save. Less loans mean less debt and less slavery. And inflation is caused by lending, the extra money from interest is where money printing comes from. It does not hurt banks at all, on the contrary, it hurts everyone who does not have the ability to print money.

If inflation is higher then interest rates then lenders will end up having assets that are worth less then when the funds were lent out.

If you have an incentive to save then you have an incentive not to spend, if you do not spend money then there will be overall lower economic output

[lyth0s]

Inflation is good for borrow's since you pay the money back with dollars that are not worth as much and it hurts people with savings. Deflation is good for creditors and people with savings as their dollars are worth more tomorrow than they are worth today.

Some small inflation can be good, but when you look at how acutely the monetary base has skyrocketed, this is a problem.

http://www.geekcipher.com/technology/bitcoin-vs-us-dollar-in-retaining-value/

^^First graph on that page

http://www.slate.com/blogs/moneybox/2012/08/03/the_monetary_base_is_irrelevant.html

The monetary base is still increasing at an alarming rate, whether its parked with the fed, in my savings account or stuffed in someones mattress, the fact remains the same: It's increasing rapidly.

[twiifm]

Inflation is good for borrow's since you pay the money back with dollars that are not worth as much and it hurts people with savings. Deflation is good for creditors and people with savings as their dollars are worth more tomorrow than they are worth today.

Some small inflation can be good, but when you look at how acutely the monetary base has skyrocketed, this is a problem.

http://www.geekcipher.com/technology/bitcoin-vs-us-dollar-in-retaining-value/

^^First graph on that page

http://www.slate.com/blogs/moneybox/2012/08/03/the_monetary_base_is_irrelevant.html

The monetary base is still increasing at an alarming rate, whether its parked with the fed, in my savings account or stuffed in someones mattress, the fact remains the same: It's increasing rapidly.

What you should be worried is that even w QE, demand hasn't risen and unemployment is still not dropping.

Means its not working so they gotta find a better theory or we looking at possibly a decade of recession like Japan

[waldox]

slight inflation is good for the government/bankers who get the seniorage(benefit) of introducing the fiat

inflation is bad for the population as your savings is devalued and you might not even know it, its a hidden tax

[CoinsCoinsEverywhere]

Inflation is good for borrow's since you pay the money back with dollars that are not worth as much and it hurts people with savings. Deflation is good for creditors and people with savings as their dollars are worth more tomorrow than they are worth today.

Some small inflation can be good, but when you look at how acutely the monetary base has skyrocketed, this is a problem.

http://www.geekcipher.com/technology/bitcoin-vs-us-dollar-in-retaining-value/

^^First graph on that page

http://www.slate.com/blogs/moneybox/2012/08/03/the_monetary_base_is_irrelevant.html

The monetary base is still increasing at an alarming rate, whether its parked with the fed, in my savings account or stuffed in someones mattress, the fact remains the same: It's increasing rapidly.

What you should be worried is that even w QE, demand hasn't risen and unemployment is still not dropping.

Means its not working so they gotta find a better theory or we looking at possibly a decade of recession like Japan

Yes, the economy is obviously not healthy.  If it were, all the QE the Fed has been doing should have caused massive inflation.

[Erdogan]

All trades are between two entities. In an inflation scenario, you say that the loaner who buys a house, wins, because his house has a rather stable value (let's just assume that), and the loan shrinks in value. Everybody knows this.

But here is the puzzle. What about the lender? He also knows this. Why is the bank willing to lend money and get back less value later? The answer is the money supply manipulation.

The question of inflation or deflation is that it does not matter, as long as the money supply is not manipulated. Lender and loaner has the same information and the same access to money. The interest rate will float, and at times of inflation the interest rate will also rise, giving a positive real interest rate. The reason for inflation or deflation is things like inventions, change in resources, needed change in the capital structure, change in the number of people, change in the tendency to save money. The prices and interest rate will adjust continually to direct the productive capacity of the land.

The volume of money does not have to be a mathematically fixed number. In fact it can never be, because there will always be alternative money like gold, silver, types of fiat, and bubbly goods like aluminium, oil, houses that also function as a store of value sometimes. Also natural changes in the money supply. Then there is credit, that will automatically grow in times of demand for money and will work counter to deflation.

That is why we call it sound money. The supply is not fixed, but it is relatively stable and unmanipulated by governments. The point is to remove the money supply question from politics.

[GangkisKhan]

Cash-induced inflation disrupts the production structure and redistributes wealth so that capital flows into enterprises that would otherwise be unsustainable without said inflation. When these enterprises begin to take advantage of inflation, which usually comes in the form of direct subsidies or cheap credit, they expand exponentially. They go regional, national, international, and all the while they are hiring more people. When the cheap money stops flowing, those inflation-dependent enterprises will of course collapse, and all of the people working for those enterprises will be out of a job. In addition to disrupting the production structure, inflation stimulates demand and thereby increases prices. So, when the credit-addicted businesses fail and all their employees are out of a job, demand suddenly decreases because they can't afford to buy anything. As a result, prices must drop for the remaining enterprises to stay in business.

As for deflation, it can be both good or bad. It is good when the purchasing power of money is increasing because prices are going down as a result of innovation and competition. But it is harmful when it is caused by a drop in aggregate demand-- which is generally brought about because of the unemployment caused by central banks' inflationary policies-- or when a central bank/government deliberately contracts the supply of money so that the demand for money is higher than the available stock of money.

Best explanation I have seen so far to date.

But here is the puzzle. What about the lender? He also knows this. Why is the bank willing to lend money and get back less value later? The answer is the money supply manipulation.

The question of inflation or deflation is that it does not matter, as long as the money supply is not manipulated. Lender and loaner has the same information and the same access to money. The interest rate will float, and at times of inflation the interest rate will also rise, giving a positive real interest rate. The reason for inflation or deflation is things like inventions, change in resources, needed change in the capital structure, change in the number of people, change in the tendency to save money. The prices and interest rate will adjust continually to direct the productive capacity of the land.

Also agree on the point here.

[ShakyhandsBTCer]

Inflation is good for borrow's since you pay the money back with dollars that are not worth as much and it hurts people with savings. Deflation is good for creditors and people with savings as their dollars are worth more tomorrow than they are worth today.

Some small inflation can be good, but when you look at how acutely the monetary base has skyrocketed, this is a problem.

http://www.geekcipher.com/technology/bitcoin-vs-us-dollar-in-retaining-value/

^^First graph on that page

http://www.slate.com/blogs/moneybox/2012/08/03/the_monetary_base_is_irrelevant.html

The monetary base is still increasing at an alarming rate, whether its parked with the fed, in my savings account or stuffed in someones mattress, the fact remains the same: It's increasing rapidly.

What you should be worried is that even w QE, demand hasn't risen and unemployment is still not dropping.

Means its not working so they gotta find a better theory or we looking at possibly a decade of recession like Japan

The goal of QE was to get people to take more risk with their capital and to get asset prices to rise. This has happened and QE has been successful in this regard. It was hoped that the rising asset prices and people taking more risk with their capital would result in higher employment rates.

What has hampered higher employment was the amount of transfer payments and new regulations that has set back our economy. Things like unemployment insurance that lasts almost 2 years and disability insurance that lasts a lifetime give people disincentives to look for and actually work.