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Author Topic: Velocity of Bitcoin and Deflation  (Read 3620 times)
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June 13, 2012, 05:21:47 PM

I not sure there's enough of a fundamental difference to be worth cluttering up the example. Is there something specific you want to see illustrated?

The example certainly stands on its own merit. Half the fun of thought experiments is pushing limits - maybe a hypothetical durable good that improves production of widgets.
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June 13, 2012, 07:14:17 PM

Is the velocity of money a cause or effect of a healthy economy?  There is no isolated econ lab to prove it one way or another (someone should make a MMORPG...).  If it is an effect, then artificially increasing monetary velocity will not make a difference. 

If there are 2 producers of 2 essential products, both buying from each other then the money circles.  A perfect economy.  Now let's double the velocity -- to do so it would mean that everybody works twice as hard and gets twice as much stuff.  But now each person has double what he/she wants/needs... so a lot of stuff is wasted and the people are exhausted leading miserable lives.  Is that better?  Now let's drop back to the baseline but instead introduce a new item costing 10% of the original that dramatically improves quality of life.  So everybody works 110% to purchase the original products and the new one (and we see a velocity increase).  That is arguably better, depending on how much you value your time.

Obviously in the original contrived example of doubling consumption people see the waste and stop working so hard.  How do you end up in this situation IRL?  Perhaps through purchases of high-markup, fast depreciation luxury/name-brand goods, often by loan...

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June 13, 2012, 09:06:05 PM

Low velocity might theoretically be a problem if everyone has bitcoins and no one is spending them on what needs to be done (food, energy, what ever).

HOWEVER this is NOT happening: Even now as BTC is still rising rapidly, people are still investing them into various projects.

Later in bitcoin's adoption stage - as others have mentioned - at some point you HAVE to buy bread to feed yourself even if BTC is rising a billion% a second.

The scares of "low velocity"/"deflationary spiral" and "instability"/"currency fluctuation" have NO empirical basis behind them, it's just propaganda for state fiat.

The first simply doesn't exist and the second isn't all that dangerous when the trend is up (BTC/gold deflation), instead of down (fiat inflation).

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