Inflation supports economic growth. Prove otherwise in this thread!

[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

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.

Actually the goal of QE was to inject liquidity into the banking system w the hope that banks would lend the money out.  But what happened instead was the banks used the money on investments so the stock markets shot up.  The reason they did this because private sector doesn't want to take on new debt because they're paying down balance sheets

I don't believe unemployment insurance de-incentivize people from looking for jobs.  Its more like the jobs aren't available.  Even though 2 years is a long time its still temporary

Its not just unemployment, the entire US economy is in a  slump by most metrics. 

Richard Koo has a good theory that explains this he calls "balance sheet recession" and another one called "QE trap"

[Harley997]

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.

The amount of additional dollars that has been injected into the economy is huge. QE has made the money supply artificially higher then it otherwise would be.

[RoadTrain]

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.

But it doesn't really matter because QE can't contribute to inflation, and it has been proved at least two times (Japan and US).
What Fed does is replacing treasury securities that banks hold with reserves. Reserves on their own can't flow into the economy, they are only used in transactions between commercial banks, Fed and the government.
The only positive thing QE might've done is unloading toxic MBS's from the banking system and thus calming the markets.

[Ibian]

That is, until they do begin to use them. The rules are constantly changing. There is a nonzero chance that the coming economic meltdown is planned. As long as it happens in a controlled way, it is possible to benefit from it.

[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.

But it doesn't really matter because QE can't contribute to inflation, and it has been proved at least two times (Japan and US).
What Fed does is replacing treasury securities that banks hold with reserves. Reserves on their own can't flow into the economy, they are only used in transactions between commercial banks, Fed and the government.
The only positive thing QE might've done is unloading toxic MBS's from the banking system and thus calming the markets.

How do you figure that QE doesn't contribute to inflation?  We have had inflation over the last few years, and look at how much the markets have gone up since 2009.

[Swordsoffreedom]

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?

Because the monetary base of bitcoins cannot be expanded, the currency would be subject to severe deflation if it becomes widely used. Keynesian economists argue that deflation is bad for an economy because it incentivises individuals and businesses to save money rather than invest in businesses and create jobs. The Austrian school of thought counters this criticism, claiming that as deflation occurs in all stages of production, entrepreneurs who invest benefit from it. As a result, profit ratios tend to stay the same and only their magnitudes change. In other words, in a deflationary environment, goods and services decrease in price, but at the same time the cost for the production of these goods and services tend to decrease proportionally, effectively not affecting profits. Price deflation encourages an increase in hoarding — hence savings — which in turn tends to lower interest rates and increase the incentive for entrepreneurs to invest in projects of longer term.

From https://en.bitcoin.it/wiki/Controlled_supply

Simply put people invest because they expect a greater return than deflation can bring in the long term, therefore the economy is grown at a rate of development greater than the price decrease and promotes long term over short term investments on a balance sheet, second bitcoin is still inflationary this concern is not to be addressed for a few more decades.

262500    2    25.00    2014    11812500    1312500    13125000    11.11%    62.500%
315000    2    25.00    2015    13125000    1312500    14437500    10.00%    68.750%
367500    2    25.00    2016    14437500    1312500    15750000    9.09%    75.000%
420000    3    12.50    2017    15750000    656250    16406250    4.17%    78.125%
472500    3    12.50    2018    16406250    656250    17062500    4.00%    81.250%
525000    3    12.50    2019    17062500    656250    17718750    3.85%    84.375%
577500    3    12.50    2020    17718750    656250    18375000    3.70%    87.500%
630000    4    6.25    2021    18375000    328125    18703125    1.79%    89.063%
682500    4    6.25    2022    18703125    328125    19031250    1.75%    90.625%
735000    4    6.25    2023    19031250    328125    19359375    1.72%    92.188%
787500    4    6.25    2024    19359375    328125    19687500    1.69%    93.750%

[molecular]

But I believe that also deflationary system can work. People will still buy things they need, although not as much.. Causing joblessness etc 

I wouldn't mind working a little less.

[molecular]

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

Hey, I have an idea: let's just try it out!

[herzmeister]

But I believe that also deflationary system can work. People will still buy things they need, although not as much.. Causing joblessness etc 

I wouldn't mind working a little less.

Exactly. Inflation is what keeps us in the hamster wheels, locking us into bullshit jobs. http://strikemag.org/bullshit-jobs/

Spending is not what makes an economy wealthy. The available products and technology do. We could work less without losing "income", i.e. our standard of living.

[zebedee]

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.

What makes you think you should decide whether people spend?  Who gave you that right?  It's this kind of I-know-better-than-you-what's-good-for-you thinking that is at the root of the ills of society.

Just leave people alone to do with their assets what they will.

[RoadTrain]

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.

But it doesn't really matter because QE can't contribute to inflation, and it has been proved at least two times (Japan and US).
What Fed does is replacing treasury securities that banks hold with reserves. Reserves on their own can't flow into the economy, they are only used in transactions between commercial banks, Fed and the government.
The only positive thing QE might've done is unloading toxic MBS's from the banking system and thus calming the markets.

How do you figure that QE doesn't contribute to inflation?  We have had inflation over the last few years, and look at how much the markets have gone up since 2009.

Because QE can't in its nature, and I explained why. Inflation is out there for sure, but it doesn't mean it's because of QE.

[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.

But it doesn't really matter because QE can't contribute to inflation, and it has been proved at least two times (Japan and US).
What Fed does is replacing treasury securities that banks hold with reserves. Reserves on their own can't flow into the economy, they are only used in transactions between commercial banks, Fed and the government.
The only positive thing QE might've done is unloading toxic MBS's from the banking system and thus calming the markets.

How do you figure that QE doesn't contribute to inflation?  We have had inflation over the last few years, and look at how much the markets have gone up since 2009.

Because QE can't in its nature, and I explained why. Inflation is out there for sure, but it doesn't mean it's because of QE.

I did a little research, and I see what you mean about how bank reserves held at the Fed have increased by almost as much money as the QE programs have created.  I still think that QE has caused inflation, but in the sense that the deflation we experienced in 2009 probably would have continued if it weren't for QE and other actions taken by the Fed and government.

Putting my belief about inflation having negated deflation aside, I'm also not sure that QE can't contribute to inflation, especially in the future.  So far, banks have had reason to park a lot of their money at the Fed.  But depending on Fed policy, they may start to withdraw their excess reserves and lend them out.  That would cause inflation.

In any case, thanks for making light of where a lot of the QE money has gone.  That's not something I had considered.

[RoadTrain]

I did a little research, and I see what you mean about how bank reserves held at the Fed have increased by almost as much money as the QE programs have created.  I still think that QE has caused inflation, but in the sense that the deflation we experienced in 2009 probably would have continued if it weren't for QE and other actions taken by the Fed and government.

Putting my belief about inflation having negated deflation aside, I'm also not sure that QE can't contribute to inflation, especially in the future.  So far, banks have had reason to park a lot of their money at the Fed.  But depending on Fed policy, they may start to withdraw their excess reserves and lend them out.  That would cause inflation.

In any case, thanks for making light of where a lot of the QE money has gone.  That's not something I had considered.

Yes, deflation event was fairly short. But I'm inclined to thank the Treasury for this, not the Fed (but the Fed actions likely helped by calming the panic and giving some confidence). What is truly inflationary is budget deficit, because it adds financial assets to the private sector, which helps increase spending.

As of reserves, it's important to understand that banks can't "withdraw their reserves and lend them out". The reserve money is only used inside the Fed payment system, i.e. in transactions between banks, the Fed and the Treasury.

Reserve requirement does not actually restrain bank lending in a modern monetary environment, because new reserves can always be created by using discount window, repo operations and so on.

[Ibian]

Without QE the money would have had to come from elsewhere. As such it did cause inflation.

Look, it's simple. The money is either real, or it is not. If it is real money then it is part of the economy. If it's not real money, then it doesn't exist and doesn't count.

[tee-rex]

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?

It can be, and actually was sustainable in the late 18th and through the 19th centuries under the gold standard. The reason for this is rather simple though. Money appreciation (that is deflation) was compensated by technological innovations and growth in productivity (remember the Industrial Revolution which happened in the period from about 1760 to 1840). The same is also possible today if, for example, they find a means to postpone the coming of old age significantly (I've heard that half of all production worldwide in the last 50 years was due to an increased human lifespan).

[Ektra]

I understand the idea that inflation encourages exchange of money for goods and investments. I wont attempt to claim this doesn't support growth. But people do not like being dictated to that having value sapped from their savings is a good thing, like they need to be whipped into splurging their money. The system supposedly works to stimulate a certain pattern of spending and growth, but it is narrow minded to assume it is the only way to do things. So - rather than 'more of the same, but mo'betta', IMO people are turning away from the system in order to do things differently.

[btcbug]

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?

As an individual when you work, get paid and put your money in the bank are you becoming wealthier or poorer? Hint: You are increasing your stockpile!

If you save your money for many years and then start spending it and depleting your stockpile, are you becoming wealthier or poorer?

Now if you had saved $100,000 during your career, retired, and lived off a fixed income from your savings, do you think rising prices would be a benefit?

In my opinion, spending just for the sake of spending is not a formula for wealth creation. Savings, investment and wise spending are what makes everyone wealthier.

Inflation is a terrible hidden tax for those on a fixed income and punishes savers. The ones who benefit are the ones who get to spend the newly created money first before the general increase in prices. So if the government prints more money and then spends it into the economy they can benefit by paying today's prices. Once that money makes it way through the economy and prices rise it hurts the average person because wages generally do not keep up with prices and savers are losing purchasing power their existing savings.

Read Murray Rothbard - What has government done to our money. Check out Mike Maloney's stuff http://www.hiddensecretsofmoney.com/

[molecular]

I would argue there are different kinds of growth:

• Artificial type of growth (generated by injecting newly generated money into the economy).
• Growth financed by investment of existing money (usually savings)

On paper using an aggregate view they look the same: GDP increases. However they differ in sustainability and effect on the economy: the first one is kind-of "fake". It might not have been done without the new money being printed, so whatever was done with that money is less economically viable. At the same time it has the effect of "removing" value from projects that are economically viable (due to the reduced value of the existing money). It results in misallocation of capital that will correct at some point and in addition distorts price signals, making the economy less efficient. The second type of growth ("real growth" if you will) is more sustainable. There was a viable economic reason the investment was made (otherwise it wouldn't have been made). Of course also these businesses / innovations can fail, but they should turn out to do so at a lesser rate.

Essentially growth generated by inflation is "fake paper growth". It's like blowing air into a balloon: it get's bigger, but doesn't gain weight.

just my 2 satoshis

[molecular]

In my opinion, spending just for the sake of spending is not a formula for wealth creation. Savings, investment and wise spending are what makes everyone wealthier.

Inflation is a terrible hidden tax for those on a fixed income and punishes savers. The ones who benefit are the ones who get to spend the newly created money first before the general increase in prices.

Well said, man.

[btcbug]

I would argue there are different kinds of growth:

• Artificial type of growth (generated by injecting newly generated money into the economy).
• Growth financed by investment of existing money (usually savings)

On paper using an aggregate view they look the same: GDP increases. However they differ in sustainability and effect on the economy: the first one is kind-of "fake". It might not have been done without the new money being printed, so whatever was done with that money is less economically viable. At the same time it has the effect of "removing" value from projects that are economically viable (due to the reduced value of the existing money). It results in misallocation of capital that will correct at some point and in addition distorts price signals, making the economy less efficient. The second type of growth ("real growth" if you will) is more sustainable. There was a viable economic reason the investment was made (otherwise it wouldn't have been made). Of course also these businesses / innovations can fail, but they should turn out to do so at a lesser rate.

Those are good practical points as well.


To add a bit more... many people will argue that this "fake growth" is good and it can be difficult to distinguish between the two.

To make it easier just look at the principal of it and you'll always spot a bullshit argument.

The fiat system is forced upon us through law, which means that issuing a competing currency to your nation's currency is illegal. Therefore nobody can compete with the gov./central bank. Normally everyone knows that that competition in the market is a good thing, but why is money the exception? Why can the gov. issue more currency, but if the average person does it's called counterfeiting (which of course is theft)?

What is considered immoral for us as individuals, cannot magically be morally correct for a group of individuals who call themselves the government/central bank. End of story!