Price inflation =/= Monetary inflation , but why do CB use the CPI data then?

[GreenStox]

Price inflation=The rise of prices in % in a given period of time (The term is really bogus, it should be "price increase" because prices actually dont inflate, they increase or decrease)

Monetary inflation= The expansion of the money supply in an economy

So to an amateur the 2 concepts look the same:

Let's take a simple example: Joe is the king of Joeania, and he issued a currency named "J". He issued 100 units of J, to his subjects. And thus the average price of eggs in his kingdom costs 1 J. One day, Joe decides to print 100 more units of J, thus expanding the money supply to 200 J, now after the subjects discover this action, which in his kingdom is transparent, he announces every monetary policy to the public, the price of eggs increases to 2J, not because the eggs are worth more, but because the purchasing power of J just halved, thus the new 2J is actually worth only 1J of before the expansion, so the value is the same, but the reference, the currency has changed.

So in that example above, once the monetary inflation happened (printing 100J, doubling the supply), the price of eggs immediately doubled. So to an amateur, the PRICE INFLATION and the MONETARY INFLATION look identical.

But in reality they are as far from being equal as a cow is not equal to a chicken.In theory, they might look identical, and many economists think they are, but they are not

-------------------------

So what if Joe decides not to reveal that he increased the monetary supply? Then his subjects would find out the devaluation of the currency much later, when the taxmen would come and ask for double taxes, so the entepreneours would have to pay double salary to people, and the entepreneour would purchase his inventory of goods aswell for double price from his partners, and the inflation would tricke down much slower into the economy.
Even though the Central Bankers in Joeania would immediately know that the J's purchasing power is halved, the subjects would only know it on a longer period of time, which could be even years.

But this is just a transparency issue (which most CB don't have, for example the US. FED hides the M3 numbers, I wonder why  )

But let's pretend that CB are honest and transparent, which is a huge assumption, but just for the sake of example let's pretend.

-------------------------

So even if the CB is honest and announces the monetary expansion immediately, what if the egg seller in Joeania decides to not increase the prices, but rather decrease the quality of eggs supplied. He will sell his eggs for 1J, but he will sell rotten eggs too in his basket, or he will just fire a few workers on his egg farm, decreasing it's cost, and make the rest of his employees work harder for the same wage, thus he can now afford to sell the eggs for 1J, but actually it's not just that his producing cost halved, but he even makes more profit than before if we were to compare his income and cost to a 3rd party currency.

This process is called "shrinkflation".

So even thought the price doesn't increase, just by laying off a few workers, or decreasing the quality or quantity of the products, the inflation can be hidden.

--------------------

With the processes above, we can hide the inflation in the unemployed numbers, the inventory orders numbers and in the product itself, weather we decrease the quality of the product, replace few ingredients with cheaper ones, or just plain decrease the quantity of it, THE CPI numbers remain the same, but the inflation will rise!

Also the unemployed numbers can be hidden even further by just, not counting the unemployed persons after they are not eligible for subsidy/welfare anymore. They didnt found a job, but they didnt applied for welfare, so they are technically employed according to the governments.

So with these techniques, the inflation can be so well hidden, that only Central Banks know it really!
(USD official inflation rate ~0.7%, when in reality its more around 6%)

So if this is the case, and it is, then why the fuck do Central Bankers use the CPI (Consumer Price Index) or CPE numbers to estimate the inflation because they are useless bullshit and wrong information?

The only way to know the real inflation is to just look at the M3 numbers (Oh but that is hidden by the FED, and not published anymore since 2006, geez I wonder why?  )

[GreenStox]

.....

If terms are redefined without general understanding, words lose their meaning.

They are talking about price inflation.

The Fed does not use the CPI to quantify price inflation.  They use the PCE.

I see, but many CB other than the FED do use the CPI, and also many economists use it in their works aswell, when its obvious that it's a useless number.

.....

Two assumptions are implied: both Q and V were held constant.  If the V/Q quotient also increased, there would be even higher inflation.  If they decreased, there would be smaller inflation and even deflation depending upon the extent.

I`m skeptic, i`m not sure if the quantity theory of money is correct, i`m not a monetarist. It just seems common sense to me that it doesnt matter what people believe to be true when it's not true.

You can create artificial scarcity by making people spend faster, but if the underlying numbers are not corresponding to reality, you just created a fake bubble that will pop out (unless you keep it artificially pumped as it is now with 99.9% of derivatives).

I`m not sure if monetarism is correct.

....

The price inflation would be as immediate as the new circulation of the newly issued currency.

The Fed does not try to determine the supply of money relative to the price level.  They approximately guess with the Fed funds rate relative to inflation.  It is suboptimal to determining M that satisfies constant P.

Yes it is, but if the information is hidden, then it needs time to trickle down to the ordinary people.

It will need price discovery, and every transaction will adjust itself based on the previous inputs. People will sense the devaluation in their guts, so the price discovery method will eventually reflect the fair price, but this process can last years, if it's well hidden.

See if the numbers say 1 thing (reality) and people believe other, thant that will just create a bubble, and many people will lose money or overpay for things, where as the crooks who know the real value of stuff, can use valuation tehniques to do insider trading.

For example they know that the price of eggs (fair price) is 2J, but the average guy thinks its 1J, so they just buy them all at 1J, and once the guys find out the fair price is actually 2J, he will sell it, and thus by insider info he can profit.

Probably they use this tehnique in the derivative markets.

...

It's likely that quality would immediately drop, but it's more likely that most of the effect would be an increase in the general price level because products produced are relatively fixed over short time periods.

Inflation will always show no matter what the configuration of spending.

Not necesarly, because if entepreneours are fooled, and they are hesitant to increase wages, than nobody will buy at higher prices (stagflation), so shopkeepers and other vendors would have to cheat the consumer by offering less for the same price.

It all depends on consumer sentiment, people are dumb and they dont realize they buy 195 grams of cornflakes for the same price as 200 grams of cornflakes before. Nobody looks at the "quantity" numbers such as kilograms, grams, or pounds whatever.

Or they decrease the quality, which is even more hidden, they add soybeans into the meat.

Have you eaten sausages before? I swear the quality of it decreases year-to-year, they add more and more additives and it contains less meat. Some say they even add rat-meat to it.

So put aside conspiracies, the quality can be very easily hidden, and it can trick consumers easily.

Because consumers are dumb, they only see that prices increase, so they only shop in the store where its cheaper. And there is only 2 way of selling cheaper food: either you decrease the quality of it, which is hardly noticable, or you cheat the sales tax, which is more riskier.

So by just staying ahead of your competitors by offering to sell less quality food for less price than your competitors in an inflationary enviroment, you attract more people, than by increasing the price.

Trust me i know this from experience. Shrinkflation is more efficient, than to let prices rise.

+ Retail consumers (90% of economy) , dont really know the Wholesale prices, so they are the last people where the information of prices goes.

......

Inflation is never hidden.  You can calculate your own price index on the products you purchase to approximate the total inflation level.

None can hide from the problem that is always and everywhere monetary, general price change.

Of course it is, read previous reply. If everyone sells at the same price, but sell lesser quality products, then the inflation can be forever hidden, and suddenly people wake up that the quality of products is sub-human.

Falling houses because they used less and less cement in the walls, people die of food poisoning because the sausage contained poisonous ingredients that were cheaper on the black market, then normal ingredients, etc etc

It's always nice to theoritize inflation, but once those academic punks go out in the real world, they see all their theories failing, because reality is far from their theories (i`m talking about Keynesians, and Monetarists aswell here).

[GreenStox]

Anybody else wants to address this conversation, it's very important to discuss this guys, so please join us! 

[johnyj]

Trying to learn how existing monetary system works is a waste of time. It is much easier to just start a new monetary system with opposite set of rules and see the difference

[GreenStox]

Trying to learn how existing monetary system works is a waste of time. It is much easier to just start a new monetary system with opposite set of rules and see the difference

Well there is only 1 way a monetary system can work, by the root essence of economics and by the basic laws of it.

Smithians and Austrian economists are the sound economics based on common sense and the basis of bartering economics, supply & demand, market behaviour based on participants, because economics is a social science based on people's characteristics, which doesnt change unless you do a huge genetic modification on them.

So all these new theories like Keynesians and Monetarists, Collectivists, are bullshit. Economics was invented way back in the Ancient Greek democratic era and established in the 1700-1800 years.

Everything that came after it was only a propaganda version of it, a spinoff to suit the current political culture.

Marxists,Leftists,Socialists favour Collectivist economics
Fascists and Authoritarians favour Keynesianism
Liberals and Conservatives favour a Slithly freer version Monetarism

But in general they are all wrong, and the true economics is the one layed down by the Smithians.

So there is only 1 true monetary system, however Keynesian central bankers can lie about common sense, and fool idiots that raising prices are good for one's wallet when common sense say's otherwise.

The innovation bitcoin brings is that nobody can lie here and nobody can conceal data here, you can exactly know the monetary supply, you can exactly know the hashrate & difficulty -> thus calculate inflation, you can exactly know the price of it and the velocity of it, and calculate demand.

All essential info is public and cannot be concealed and faked.

While in the establishment economy, this is all hidden, concealed, manipulated or totally modified, so that investors are confused and will bet on both outcomes, so that market makers can hedge themselves out of it.

[dinofelis]

Yes it is, but if the information is hidden, then it needs time to trickle down to the ordinary people.

It will need price discovery, and every transaction will adjust itself based on the previous inputs. People will sense the devaluation in their guts, so the price discovery method will eventually reflect the fair price, but this process can last years, if it's well hidden.

As soon as someone has excess cash, it will affect their spending.  The marginal amount applied to any real product will cause its price to rise regardless of changes in quality.

Prices send their own signals.

I do not agree with the "as soon as". 
Indeed, the propagation of an extra quantity of money takes time to flow through the economy, and is especially dependent on the "injection point" (that is, the main benefitors of seigniorage).

If the injection point are relatively low economic classes, then yes, indeed, it will turn almost immediately to increased demand for consumption goods.  This is what happens when the state "prints money" (that is, has deficit) and issues it to social programs and other distribution of money.  The inflationary effect is very quick, because people who have to "count every dime" will spend quickly to increase somewhat their life standard when they receive more money.  This spending has an almost immediate effect on demand and hence on consumer prices.

However, if the main seigniorage goes to financials, such as is the case with a QE programme for instance, where mainly financial assets are bought by the FED (and not so much state deficit), then the seigniorage goes mainly in the pockets of the holders of these assets (for instance, financials holding MBS and being able to sell them to the FED).  These people will not turn their extra cash very quickly in demand for consumer products.  They will instead use it to buy other financial assets (here, or abroad), which will make the sellers of those assets richer, and so on.  And before this trickles down to demand for goods and services, this will take a long time.  It is only at that moment that the price inflation from the money issuing will appear.  That can be years later.  Especially if the seigniorage went abroad. 

In fact, indirectly, this corresponds to increasing the demand for store of value.  If the Chinese are holding freshly printed dollars against financial products for a long time, this "holding of dollars" enters into the demand for storage of value, and hence a decrease in V.

But sooner or later those Chinese will buy stuff with those dollars, end their store of value in their mountains of dollars, and at that point, the increased demand will cause price inflation in whatever the Chinese will buy, and that price inflation will propagate through all of the economy.  That can take a decade or more.

Most consumption is done by the rich, and the poor more or less follow their lead except when they're offered greater amounts of credit.

The rich respond immediately to all changes in the supply of money.  The lower classes follow.

I would say the opposite.  When you're rich, and you get even more money, you invest it.  You already have most consumption goods you wanted.  It is the relatively poor who spend immediately what they get extra.  Because they have stronger needs.
Most very very rich people actually do not have an extravagant life style.  Sure, they have a nice house, an expensive car, they make expensive holidays and so on.  But they can afford it already.  If they get more money, they do not buy immediately a bigger house, another Ferrari, and they don't go more on holidays.
Look at a Steve Jobs or a Bill Gates.  They live(d) very well.  But whether they got a billion more or less didn't influence their spending at all.

[GreenStox]

A Laspeyres is useful if you have nothing else, but most non-US central banks use the Ideal Fisher Index like with the PCE.  They only call them CPIs.

Actually it doesnt matter what the central banks use, because they know the money supply. It's what the other units of the economy use.

If an investor is fooled by low inflation, and keeps his savings in a bank on 1% interest when he is fooled that the inflation is only 0.5%, he thinks he is making returns on that investment, when actually the inflation is 4-5%, so in reality he is losing money.

The deception is always in the outer layer, the insiders can always shield their money, and not all big investors got insider sources, so most companies will lose money eventually, and they won't even realize it before it's too late...

The model you're using to describe the consequences of prices, output, and money look like the quantity theory without velocity.  Can you point me to the theory you're using?

I`m a classic Smithian/ Austrian Economist, because i found all these theories just basic common sense. The foundation for economics has been layed out in the 1700-1800, and everything after that was mostly propaganda.

The communists say collectivism is correct, liberals favour keynesian/ monetarism. It has more to do with the political agenda rather than real science.

So i find most of these theories bullshit, or built on bullshit. Keynesianism tries to solve a problem, created by itself, when they dont realize that the only problem is themselves.

All these newly come modern problems in economics has mostly been generated by central banks, and a rigurous control over economy and free trade. Without it, the world would be a better place.

I agree with the harmful effects of price inflation, but I don't agree that there are any positive benefits.

Inflationary monetarists believe that a little inflation is productive.

Nearly all monetarists agree that deflation is not productive.

Then why are they supporting central banking and government regulation of the economy, when it's obvious that these 2 institutions are the problem that they try to resolve.

-Socialists will always overspend , deficit-spend, and you will always need central bank to print money for them.
-Military-industrialists will always overspend , deficit-spend, and you will always need central bank to print money for them.
-etc etc

I don't agree with the little inflation, because who say's what is enough? The common 2% inflation is that it? Then why not 2.01% if 2% is good, but if 2.01% is good too why not 2.02%? You see, so we can easily set that limit arbitrary, and soon you wake up with 20% inflation...

There is no way to slap on the hands of central bankers when they overshoot, so they will overshoot, and the consumer will bear the costs.

Deflation is not productive? Really. So iPADS , iPhones, Electric gadgets, Pc's, Cars,etc. All of these markets are deflationary, and you don't see any slowdown in consumption.

If iPhone 20 would come out tomorrow, nobody would wait 1 year for the price to go down, everybody would buy it tomorrow at that price.

So nobody would buy food for 2 years because the price of it would be cheaper after 2 years? 

That is the most bullshit argument against deflation that can ever exist. Deflation doesn't have to encourage consumption, it just merely gives the consumer more purchasing power so that he can buy more stuff,thus consumption will eventually increase!

While inflated money is like a grenade in your hand, you always have to pass it on to another person, and not let it blow up in your hands. You are forced to buy stuff, not because you want it, but because otherwise the money will evaporate in between your fingers. And once you run out of it, you just indebt yourself, to the point that you become the slave of the bankers.

Not a good idea, yet the latter is exactly how our current economy works

As soon as someone has excess cash, it will affect their spending.  The marginal amount applied to any real product will cause its price to rise regardless of changes in quality.

Prices send their own signals.

Excess cash, how? When investing is discouraged, they don't have excess cash, they have excess debt.

If 60% of population buys with loaned money from credit cards, how are they going to see that, if their credit leverage will just rise.

With 1% collateral its easy to run a debt scheme for a long time.

Let's say you got 1$, and you spend 100$ on a 1% collateral scheme. Once you run our of the 100$, chances are that your wage will increase *cough by minimum wage*, to 2$ so you  can access another 100$, then you spend that other 100$, your collateral increases again, and you gain access again and again.

It will take many years for the interest rate to compound to the point where interest rate > new loan , so the risk of default is small, and this scheme can run for many years.

Nobody will realize inflation, yet, they will actually cheer for it, because it erodes their debt.

What an upside down world is this, but this is exactly what is happening now. People pay off 1 debt with another one and enslave themselves to the CB.

Most consumption is done by the rich, and the poor more or less follow their lead except when they're offered greater amounts of credit.

The rich respond immediately to all changes in the supply of money.  The lower classes follow.

That is not true, rich people are more investors, and loaners, than consumers. They give out their money in loans to the poor, and the poor pays the interest back to them. So while rich people get richer , poor people get poorer. Simple as that.

[GreenStox]

They may know the money supply, but the Fed gave up on trying to formulate M given P almost as soon as it was founded.

Now, they follow their Fed Funds target: if the actual rate is higher than the target, they sell; if it's lower, they buy.

I wasnt talking about short term rates, i was talking about long term fixed rates. If Joe got 100.000$ deposited for 6 months on a 1% interest, and he is fooled that the inflation rate is 0.5% he thinks he made a 0.5% return, but if the yearly inflation is 5%, he just lost 2500$.

Btw, why does the FED interfere in the short term loans rate? Why not let the market adjust itself?

See this is what i cant understand this interventionist control freak mindset. If the market signals something, for example the overnight rates rise, why does the fed sell those insturments instead of letting the interest go where it needs to. Let the market determine the interest rate and not a commitee with hidden agendas.

After all they decide what the interst rate should be, but its more like a dictatorship rather than a "adjusting to market" basis.

If you don't subscribe to monetarist principles then why use their quantitative models?  I know of know other model that relates supply to inflation.

I`m using what is good from every model and throw out what is bad. Smithianism was never quantified in it's time, so it was never a full theory of economics.

So those quantitative models don't actually belong to Monetarism.

The evidence on the surface suggests that moderate inflation is good.

In the US, inflation averages nearly 2%, and the overall real rate of economic growth is relatively high at least compared to Europe a larger economy, but Europe also has nearly 2%.

In Japan, there were a few decades of 0% inflation on net, yet their overall growth stagnated despite having debt levels like Hong Kong, which has higher than US average inflation.  However, Japanese real per capita growth is very high.

Growth and credit is dependent upon economic freedom but also price stability.  It's impossible to build a large financial structure on top of price unstable currencies, and no large per capita income is present where large debt is not.

From my own research, it's clear that continuous price stability is the optimal monetary configuration.

Why is inflation necessary at all?

Inflation is a plain robbery of purchasing power.

With a 100% margin requirement loans, by discouraging a few loaners, indeed obtaining credit would be harder, and probably it would have a higher interest, but.

And this is a big BUT. Without inflation, prices would never be high, so 99% of the time people would not need credit. They would only need credit if they start some big project, where they obviously have to meet a few requirement to access the loan.

All this credit card mania, house loans, car loans, student loans. All big pile of donkey crap. None of those items should be more expensive than 1 year revenue of an average middle class person.

They used to build houses on their own in the middle ages, it cost them a few beers and a few cattle to pay off the helpers and thats all.

And now you indebt yourself for 25 years for a house loan?  

So my point is that, yes 100% margin requirement would hurt the GDP, but mixed with no inflation and low prices, it would cancel out all negative effects, and actually it would make it atleast 1000% more efficient than now, and easier to consume.

The GDP growth rate should be about 20% /year (without inflation as byproduct), instead of tiny 0.2% which is probably just made up.

One argument would be the scarcity of resources, but i`m sure we can find a solution to that: synthetic oil plants, algae generating natural oil, etc.

This should not be a problem in a civilized 21st century, unless we are being controlled by thugs, which is sadly the case  

They are not deflationary because they are different products.  Prices of different products cannot be compared for the purposes of determining the inflation rate.  An iPhone from today cannot be compared against a previous version, only itself.Productivity in technology grows as rapid rates, but prices do not.

You misunderstand me, i wasnt talking about a class of products, i was talking about 1 particular product.

1 ipad, you buy now for 300$ or whatever, 1 year from now you can't sell it for more than 300$, and not ever 300$ because it get's used, or it goes out of trend, or it just has a age watermark put to it.

Yet with houses its the opposite, not because the house market works in a different economic universe, but because it's being pumped up by the central banksters.

You buy 1 house or a farmland, and you bet that in a few years you can sell it for profit. While making poor people who just want to buy a home, being indebted to banks, just for the sake that some house brokers, and speculators can become rich.

Not very moral, and also disastruous for the economy in the long term.

I never suggested they would.

However, if supply stability brought a 50% inflation, doubling the real amount owed on debt, consumption would surely drop while that is being sorted out.  Under economies with those levels of price stability, food cannot be afforded anyways.

I dont understand what you try to say here please explain detailed.

From the presupposed added money supply which produced the presupposed price inflation.

Lol they don't give out that money for free. It's not like they drop the money out of helicopters.

They either loan it out, or they buy assets with it. None of those will benefit the poor strata.

If they loan it out to businesses: the consumer pays that extra costs, reflected in the price.
If they loan it out to other central banks: other taxpayers will pay it OR other consumers that buy products  from those companies that receive that loan.

Either way it's a chain of layer of debt on layer of debt.

Actually it's a pyramid scheme, where the CB's are on the top , below the big banks and credit institutions (and their rich class owners), below the middle class consumer & tax payer, and below that the low class taxpayer & consumer (of mostly welfare)


The scheme implodes every 10-15 years, and then they reset it and start it again. This is going on for atleast 3000 years.

Do you have a data source that supports that?  The Consumer Expenditure Survey and equivalents in the developed world show that the rich do most of the spending albeit at lower proportions than the poor.

In % its always the rich who spends less. They spend more nominally, yes because the products they buy costs alot. G4 Jets, Lamborghini, new mansion,etc. But it's only a fraction of their wealth, otherwise they would not have wealth/

Buffet and others, accumulated their 70b dollars by not spending it. If he would have spend his wealth, he would not have it LOL.  

While the poor people are mostly poor because they spend all their money. My uncles father had a nice income all his life, and didnt got any excessive wealth built up before he died, because he spent all his money. If he would not spent it, he would have been a pretty wealthy person in his community.

[GreenStox]

Yes, and only a currency such as The Ideal Reserve that has price stability will yield a real return of 0.5% on that investment.

Supply stable assets almost never match the nominal and real yields.  In the case of BTC, if someone held that investment denominated in BTC and invested at BTC's height, the real return from last year's price inflation would've been worse than the Fed's above, hundreds of percent worse.

I also disagree with bubbles, let's be honest bitcoin doesnt have an established credit-investment system yet so dont compare bitcoin to the current system.

There are some who try: Havelock and BTCJam, but they are still in a low market cap. Once it gets more mainstream it will work just fine.

100% reserve requirement is always necessary though. Otherwise you will end up with ponzi credit schemes.

It's almost like a dictatorship since those in the US may use almost any banknote they wish.  They are forbidden from coining money.

The Fed is mandated by law to maintain price stability and low levels of unemployment.  They have interpreted this as maintaining a 2% inflation rate.

The Fed cannot control the real rate of interest, only the nominal.  The market always decides the inflation adjusted rate of interest.

It is a dictatorship, a monetary one. They can't have their private money system, that is the definition of it. Classic communist style central planning method of controlling everything.

Yet they keep the interest rate artificially low. The primary market is always the one who loses, they have to accept the rates from which the fed gives them.

I`ll respond to your other points later

[Erdogan]

Don't forget to take into account the inflation expectation. This may be different from the historic inflation or the perceived inflation. If the expected inflation starts to rise, it is very difficult to stop it even if you somehow can immediately stop printing. It is about the trust in the future value of money, and that is a chain reaction. Argentina peso is a recent example.

[Erdogan]

Don't forget to take into account the inflation expectation. This may be different from the historic inflation or the perceived inflation. If the expected inflation starts to rise, it is very difficult to stop it even if you somehow can immediately stop printing. It is about the trust in the future value of money, and that is a chain reaction. Argentina peso is a recent example.

Have you found good evidence for that?

All of the papers I've seen are very weak.

Very interested.  Thank you in advance.

Argentina, as I mentioned, have had 40 % yearly money volunme increase, and 40 % inflation. They reduced money creation to 20%, but the inflation continued at 40%. I can not be bothered to search this up again, sorry. Anyway, direction the herd is apparently the primary task of central banks at the moment, and their inflation goal is what sends the message. It works as long as it works.

[Erdogan]

I don't like the velocity measure. I guess you could solve the equation and get a higher velocity as a result. Maybe not completely wrong, as in these situations people buy anything to get rid of the money.

[dinofelis]

I don't like the velocity measure. I guess you could solve the equation and get a higher velocity as a result. Maybe not completely wrong, as in these situations people buy anything to get rid of the money.

In fact, that comes down to the same.  Velocity is the inverse of "demand for store of value" (in the currency at hand).  Rising velocity means that people are less keen on holding the currency ("bitcoin days destroyed").  That can come from external factors, such as simply a general decrease in demand for "store of value" (could we talk about aggregate demand for store of value ? ) or because they don't trust the currency any more and shift their store of value to other assets (houses, dollars, gold, silver, food, whiskey, ...).

Hyper inflation - as you pointed out - doesn't have to come solely from printing.  In fact, hyperinflation comes from the fact that people don't trust the currency any more at all, and want to get rid of it as soon as they receive it.  That makes the velocity go to infinity (and hence the value of the currency to zero).  You can also say that it makes the holding times of the currency go to 0.

In as much as V is too often seen as a fiddle parameter to make the monetary equation come out (P Q = V M), it has a genuine economic meaning: the inverse of the holding times of the currency.  During hyper inflation, people don't want to hold the currency any more.

The fear of the deflationary spiral is the opposite: people hoard the currency "to infinity", which makes the velocity go down to zero in the long run.

Both are (dual) "run-away" conditions, dominated by the holding times (one over V) and not so much by the monetary mass M itself.  Doing crazy things with M can INDUCE this effect, but other things can just as well.

[dinofelis]

Unlike what feminists tell half the world's population, you cannot have it all.

You either have supply stability or price stability and almost never both.

This is very true.  Now, you CAN have supply stability, and you can try to find tricks to make you believe you have price stability.
But in principle, in a dynamic economy, prices are not stable, as they are also signals.

If you condemn inflation then you cannot support supply stability because supply stability produces periodic spikes of inflation, like BTC from early 2014 to now, and periodic crashes of deflation, like BTC from launch to early 2014.

With supply stability, you will have price fluctuations.  If they rise, you can call that "inflation", and if they fall, you can call that "deflation".  However, in the long run, on average, a supply-stable system gives you on average deflation equal to economic growth.

If you have an annual growth (whatever that may mean ) of 3%, then you will have an average annual deflation of 3%, and hence an average annual increase in buying power of any amount of money laid aside. The *fluctuations* come from the variability in demand for storage of value in the currency, which will change (human action) according to the mood of the moment.  This will induce temporary inflation or deflation, but in the long run, we can assume that the store of value demand averages out to a certain value, and then P will go like 1/Q.

[dinofelis]

But you can't build a large financial strucutre on top of it, so now everyone has to live in shacks paid with cash.

I don't see why you say that.  Now, on one hand, it is very good that no large financial structure can be built on it, after all, most of that is abuse.  However, I don't see why you couldn't build any necessary system on it.  Loans can just as well be expressed in any good, or in a basket, than in currency.  You can just as well take a loan in "basket index" against an interest in basket, just as well as in naked currency.  This is the same as taking a loan in naked currency, and hedging against the risk of the basket price changing.

In other words, nothing stops you from defining your own "price stability" (as long as you find someone else to borrow you against those conditions).  You could also have your salary indexed on that basket, if you want to.  Why not.  The currency is just the vector, not the measurement per se.

You are going to define your "price stability" against a given basket, a price index.  Let us say that that basket's price is, at time t0, equal to 1000 shinkels, and that I want to buy a house for 1000 000 shinkels.  So I borrow "1000 baskets".  If someone is willing to accept to lend me 1000 000 shinkels, denoted in "1000 baskets", and taking an interest of, say, 5% annually (in baskets), then that would be TOTALLY EQUIVALENT concerning risk, return, and everything, with me taking a loan in your "price stable money", because if your central bank is doing its announced job correctly, namely keeping the basket at a price of 1000, then this is exactly what I would be doing.

Imagine that there is inflation, and that the price of the basket rises to 10 000 shinkels.  Then I have to pay back not 1000 000 shinkels, but rather 10 000 000 shinkels.  But hey, no problem, because there was a factor of 10 inflation, right ?  I would also earn 10 times more.  With your "price stable money", I would be in exactly the same situation.  And if you say "hey but if your wage doesn't follow the inflation in shinkels ? ", then that would mean that my wage got RELATIVELY lower wrt the general price level, which in YOUR WORLD would mean that I earn less.  So the difficulty I would be facing would be the same.   If I earn only 5 times more, and inflation is 10 times, then I'm having the same burden (a factor of 2) with my loan than when total price stability is kept, and my wage is halved.

So in as much as people would WANT basket-price stability, there's nothing that stops you from having loans expressed in baskets, rather than in money directly.  In fact, you don't care about the underlying monetary asset if you do that.

Since technology has dropped V over time

What does that mean ?  V has lowered ?   People are hoarding systematically more money now than 100 years ago you mean ?

[dinofelis]

A financial structure cannot grow very large when denominated in a supply stable asset because the massive deflations will wipe out creditors, and the massive inflations will starve banks of cash needed to fund credit production.

That's only because you denominate it in something you do not mean to denominate.  Money is a vector of value, and shouldn't necessarily be seen as a measure stick of value.  If you denominate things in money, and you actually wanted to denominate them in something else (namely, that of which you want the "price to be stable"), then it is much simpler to denominate it directly in that value.  That's what I wanted to say.

In other words, nothing stops you from defining your own "price stability" (as long as you find someone else to borrow you against those conditions).  You could also have your salary indexed on that basket, if you want to.  Why not.  The currency is just the vector, not the measurement per se.

You are going to define your "price stability" against a given basket, a price index.  Let us say that that basket's price is, at time t0, equal to 1000 shinkels, and that I want to buy a house for 1000 000 shinkels.  So I borrow "1000 baskets".  If someone is willing to accept to lend me 1000 000 shinkels, denoted in "1000 baskets", and taking an interest of, say, 5% annually (in baskets), then that would be TOTALLY EQUIVALENT concerning risk, return, and everything, with me taking a loan in your "price stable money", because if your central bank is doing its announced job correctly, namely keeping the basket at a price of 1000, then this is exactly what I would be doing.

Price stability could be anything with such a flexible definition, but I prefer the Ideal Fisher Index.  It passes all known tests.

The Ideal Fisher Index is TWO baskets (a current one, and a past one).  For every pair of baskets, there is an ideal Fisher index.  I don't see why you couldn't denominate a loan, a salary, or whatever, in your preferred Fisher index for instance (as long as you find a partner that accepts that to be the counterparty).

Yes, in your example, that is ideal, but the interest rate is too high if you're creditworthy.  That is price stability.

Why would the interest expressed in your favorite index be different from the index in your money that has stabilized said index ?

Imagine that there is inflation, and that the price of the basket rises to 10 000 shinkels.  Then I have to pay back not 1000 000 shinkels, but rather 10 000 000 shinkels.  But hey, no problem, because there was a factor of 10 inflation, right ?  I would also earn 10 times more.  With your "price stable money", I would be in exactly the same situation.  And if you say "hey but if your wage doesn't follow the inflation in shinkels ? ", then that would mean that my wage got RELATIVELY lower wrt the general price level, which in YOUR WORLD would mean that I earn less.  So the difficulty I would be facing would be the same.   If I earn only 5 times more, and inflation is 10 times, then I'm having the same burden (a factor of 2) with my loan than when total price stability is kept, and my wage is halved.

If shinkels inflated 900% then loans would become much less onerous; however, now real bank profitability has been annihilated, banks will receive no new investment, and future credit is restricted.  In such nightmare scenarios, the entire populace is rendered poor.

I'm not sure you got what I was trying to get at.  If shinkels inflated 900%, but the loans were expressed in baskets (that thus inflated also 900%) I don't see what that would make them "less onerous".  I don't see why you say that real bank profitability has been annihilated.  After all, if they gave you a loan expressed in baskets, then now your pay-off is also 9 times higher (in shinkels).  In fact, by giving you a loan in baskets instead of nominated in shinkels, the banks hedged against the inflation risk !

No, if wages did not keep up with inflation which would most likely happen because of the unproductivity brought by price inflation, your income would be lower.

What unproductivity brought by price inflation ?  If your income would be lower with respect to the basket, it would also be (absolutely) lower in your stable money, because it would mean that the relative price of my labor went down as compared to the basket.

 The difficulty would not be the same with lower real wages.  The financial structure would be destroyed under this hyperinflation, so your employer would at least be unable to pay you as much because your productivity has suffered from constant pay raise negotiations, and the employer would more than likely close because credit production dropped, decimating his revenues.

Let us imagine that there is supply-stable money, so with fluctuations in the basket price.
But let us now suppose that we express ALL PRICES in "basket" (or any price index you like).  That ALL financial contracts are expressed in baskets even though they are executed in supply-stable money (so with fluctuating amounts as a function of the price variations in the basket).

So the "actual accountant money unit" is the basket, but the transferred assets accounting for it is the supply-stable money.

Tell me in what way that would be any different from an ideal price-stable money ?

Or are you suggesting that the economy does just as well during a hyperinflation like in Zimbabwe or Wiemar Germany as it does in the relatively price stable modern developed economies?

You now switch to HYPER inflation.   With a supply-stable money, you rarely get a hyperinflation  Last time that there was a hyperinflation with gold must be a long time ago

The problems caused with inflation are mainly the loss of value of savings, and the gain in value of loans (that is, it is TOO EASY to get credit, and the easiness is the value loss of the savers).  People are frustrated in their desire to hold value, and are somehow forced to spend on things they don't really want to, and are not able to spend it in the future on things they would have liked to have.

So in as much as people would WANT basket-price stability, there's nothing that stops you from having loans expressed in baskets, rather than in money directly.  In fact, you don't care about the underlying monetary asset if you do that.

Why take on the inconvenience of formulating a complex basket when the integrated price stability of a price stable currency does it already?  Why add an extra burdensome, costly layer?

Because a price-stable currency is a chimera, for the two fundamental reasons that are always the same:

- the computation problem
- the motivation problem.

The computation problem is the problem that no central authority knows all of human action in the economy to be able to direct it as it (pretends to) intend.  In this case, the regulator will have incomplete knowledge of the index he's trying to keep fixed, the index itself will be artificial and not correspond to what people really want stable, and he will know it too late.  So the ideal regulator doesn't exist, and you will have at best a bunch of amateur-apprentice-sorcerers playing with the money supply based on incomplete, half misunderstood, and too late information.

But the motivational problem is much worse.  A regulator claims to do something (for the general good) because that's his reason of existence and the reason for his monopoly of power, but in reality, a regulator consists of groups of corrupt people who always abuse the power for a hidden agenda up to a certain point.  That agenda can be political, financial, or just self-interest.

So, in short, if you have a money that CAN be regulated, it will be abused to favor "the friends of the state".  If something can be abused, it will be abused.  Power corrupts, and absolute power corrupts absolutely.

The fixed supply money has no lever arms that can be abused, and even with all the problems that come with it, this is the main advantage: no self-declared well-intentioned regulator can fuck it up.

Yes, velocity has decreased because the demand for money has risen to satisfy household and corporate reserve for loans.  There was a blip during the Great Deflation, but the trend is certainly down.

Ah, but that is because V and the definition of M are interchangeable.  You can claim that credit creates M1 or M2 money, but you can just as well see that as several steps of M0 money.  So whether you take the fractional banking leverage into M (so you go from M0 to M2), or whether you actually include it in V, is up to a point a matter of taste.

Isn't the decline in V not simply a re-allocation of velocity into "fractional banking" ?  After all, over that period, the use of bank accounts, and non-cash means of payment increased, which in a certain way increased a lot the M2/M0 ratio I suppose.  Is that not the compensation that we see with V ?

With more credit comes more payments, and households and corporations need to have cash to satisfy those payments.  This is why BTC is struggling to increase market capitalization.

Normally, that would mean that there is a higher demand for money, which would make that money's price rise (that is, the price of services and goods would lower because money is scarce).  You would get a deflationary effect, until there is again sufficient money to do all the things you wanted.

You cannot imply anything about bitcoin here, because the price of bitcoin is not determined by the demand for bitcoin to buy goods and services with it.  The "price of the dollar" is.  Dollars are used to buy goods and services (including labor, which is called wages) with them.  With bitcoin this is for the moment a marginal part of the demand.  Which is why bitcoin is by far not a currency yet.

[GreenStox]

Ok here is my second part of my response, sory for being late i was busy with other projects.

Would you mind linking to which quantitative model you're using?

A great portion of Austrians reject quantitative analysis yet conveniently use the quantity theory of money to illustrate the harmful effects of inflation.

Chicago also of course claims to be heir of Smith, but Chicago is the only school that declares the quantity theory of money to be correct outright, and monetarism is an offshoot, unofficially founded by Milton Friedman.

Well there is no specific model that I can point at, i`m using always that seems the most logical to me, so it's not just 1 school of thought that I use, but my core foundation is in the classical economics.

I don't reject quantitative analysis, I just dont know that they are true or not, i have to look into it myself to determine, which I havent done lately. I wasn't in the loop of economics for a few years so i`m  could be a bit rusty for now, but what I never accepted is controlled economics.

I`m always for the Laissez Faire principle. Because control freaks are inneficient, corrupt and also probably wrong on so many levels.

Unlike what feminists tell half the world's population, you cannot have it all.

You either have supply stability or price stability and almost never both.

If you condemn inflation then you cannot support supply stability because supply stability produces periodic spikes of inflation, like BTC from early 2014 to now, and periodic crashes of deflation, like BTC from launch to early 2014.

Haha dont even bring up feminism, they are just leftists gone amok, the same nonsense as socialism , just for women only.

Yes you cannot have it both, but before i thought that price stability was more important. I changed my mind, supply stability is more important.

Many economists say that we need stable prices for commerce, but thats not really true.

Future contracts, Insurance, or other risk - mitigation insturments can be used by any commercialist, for risk mitigation.

There is no null risk, you will always have that, but good entepreneours must manage their risk accordingly. Those who didnt, might deserve to go bankrupt. It's just the survival of the fittest.

Stabilizing prices will only create inflation and debt, which after a century can cause an unimaginable financial collapse which will obliterate all progress done, not a sustainable model. And not even considering the 8 year cycles of mini-collapses.

The main problem with keynesianists is that they try to achieve a 0 risk model, which is impossible. There will always be years of non-productivity where GDP growth might be negative, but other years it will grow and compensate for it.

You must always release the pressure and have smaller depressions, instead of building up the steam and release it all at once in a huge total economic collapse.

Keynesians, Monetarists, and other idealists are therefore 100% wrong.

So you will raise production growth rates after decimating it through the unavailability of credit?  Please explain.

Yes, without inflation, prices in general are stable, but any particular price could be high.  With high rates of interest, the cost of capital is high, so no capital can be built.

Without credit, production cannot be funded, and all of the consumption you described will be out of reach with all of us in poverty.

In the Middle Ages, they literally lived in houses made of feces.  Is that the choice you're offering with government mandated high rates of margin and price instability?

How will one extend oneself credit to fund building a house if one has no funds to pay the workers and materials?

■Ok first of all, most companies already got 10000% profit margins, so prices can easily fall and should fall.

■I don't care about bankers, they are already a big burden of the economy. The banking/credit sector is like 40% of an economy, when it should be about 1-2%. They are overgrown and they are useless. They only create false demand for credits by shoving them down on people who don't have a choice.

You can't buy a house from your saving, because your wages are crap, so you have no choice but to take a loan. When in fact in a gold standard-100% reserve requirement-deflationary enviroment the house prices would fall, and guess what, home builders would still be in profit because their profit margin would be still positive.

Yes a few home brokers and building companies would go bankrupt, but who cares? Who said they should exist in the first place? Central bankers think they are the GOD OF ECONOMY, and everything should be done as they say. When there is no right or wrong in an economy. An economy should be shaped by real demand and supply, and not by false artificial demand created through inflation.

■ Actually the institution of "bank" has already become obsolete, with the advent of Bitcoin. They are useless now, and if there would be real demand and supply, all of them would already go out of business. Because Bitcoin is already superior to any payment processor or money holding institution.

■As for the credits , BTCJam has that, of course we need more of these companies, but eventuall, there will be a wide range credit system for bitcoin too, just be patient 

After prices fall to their real prices, you would not need that much credit anymore to fund your project, so the credit market will shrink to its normal size, as it should be.

All this credit card, student loan, car loan nonsense just makes me sick. A car should not be more expensive than 1 year net income of a household, given that there are so many of them already...

I understood you clearly.  That iPad loses retail value because better ones come for sale.

As it appears that the newer products are inflating, the older products are deflating.  The used market is not taken into account in almost every modern price index.

That is only because the materials or labour is getting more expensive, or the technology is worth more. But still there is demand for used markets too, and not just a little.

There are full retail store chains that sell second-hand stuff, so there is a real market for that. Big mistake that it's not taken into account.

However, if supply stability brought a 50% inflation, doubling the real amount owed on debt, consumption would surely drop while that is being sorted out.  Under economies with those levels of price stability, food cannot be afforded anyways.

One more reason to discourage enormous credit markets. Yes under the current conditions we are pretty fcked up, the world is in huge debt, you see all central banks around the world decreasing interest rate (to negative too) and doing QE:  EU, Sweden, Canada, etc

And also markets are already collapsing, despite they try to preserve the inflated bubble: like the oil market , which already rendered Russia , Venezuela and other countries in big trouble.

So at this point there is nothing else to be done. Either they increase the interest rates now and we suffer a huge economy collapse worldwide.

Or we will have nice global hyperinflation

Yes, if the quantity of money increases enough to cause an inflation, the value of money has dropped, so no one has benefited from the increased supply of money, only suffered.

Not noone, the bankers did, because they are on the top of the pyramid. They got billions in loan interest rates, while the others suffer price increase and pay the interest. The banksters always shield themselves from inflation.

So the bigger the inflation will get, the more they will demand and steal to not lose money from inflation, so eventually they will rob the entire world, until the global economy collapses.

The US has not experienced a 15 year expansion, and the 10 year interval is 1980s young.  From the 1980s to the Fed's birth, 5 year expansions were more normal, and pre-Fed metallic currencies brought almost biannual chaos.

Well too late now, they cant increase interest rates anymore because the debt is so big that they will go bankrupt if they do so.

[GreenStox]

Is your disagreement with bubbles of preference or existence?

BTC lives in this world, so it must be compared as if it's a part of it.  Given the nature of traditional currency, that bad money drives out good, all other currencies should be have spent away into a collapse of bank credit outstanding issued by central banks.  Instead, during the largest demand for currency in many decade, BTC lists badly, the 70 minute practical confirmation times notwithstanding, while central banks' credit exploded.

What I am saying is that bubbles will always form, so intelligent people can hedge their risk, use insurance and other methods to minimize risk.

A commercial guy can use future contracts, or buy options to hedge their risk.

Also after a bigger credit market will form, and a bigger investment market, you will see interest rates stabilize. They used to ask for 30% rates on 1 week credits (look it up in the lending section), now they lowered it.

So obviously as liquidity of credit becomes bigger, interest rates will become smaller, and thus the volatility of the exchange price will also stabilize with it.

Am I misunderstanding that you as a free marketeer, you want quotas on collateralizations rates?

2 methods can exist: if we use the cental bank system , then 100% reserve requirement is necessary , however if we use a truely free system where people can choose their currency of preference, then it's not needed.

For example in Bitcoin you have no choice but to use 100% reserve.

But if some1 would invent a crypto currency where "decentralized supernodes" (crypto-private-banks) could issue more currencies
then they set a reserve requirement as they wish.

So then it's up to the people to choose which one they will use: Bitcoin with 100% reserve, or this new currency with arbitrary reservers.

Of course since nobody would set the reserve requirement for these crypto banks, probably all of them would use 0%, which would destroy that currency entirely though inflation, even if 1 crypto bank would use 100% or 80%, the majority would still use 0%.

Another option is to let the users vote the reserve requirement for the crypto banks, and they all have to obey that, built into the protocol.

But still, at this point, this would be a free market. Private currencies competing with eachother, yes i still think that 100% reserve currencies would win.

If it's not 100% then eventually you will end up with hyperinflation

It's communist, but it's not a dictatorship.

Any currency can be used in the US with a few security blamed exceptions.  People choose not to because they pay taxes with the USD, and the available choices do not justify the added tax burden. 

Perpetually low nominal while simultaneously high real interest rates that the Argus-Nemesis can do, should make the switch much easier.

Yet they keep the interest rate artificially low. The primary market is always the one who loses, they have to accept the rates from which the fed gives them.

Taxes would not exist in a free market. They are the tool of opression and control of interventionists. We dont need any government to control the economy because it would be free, therefore taxes would be obsolete in this world.

[dinofelis]

Denoniating in a currency that is already perfectly price stable is better than denominating in a supply stable currency indexed to true inflation.  Less work has to be done for the same outcome.

No, I don't think so.  The point is that denoting prices in any inflation index you like, is first of all FREE (you can pick the index you want, you can hedge against the basket you want - free in the sense of freedom, and not imposed by any central authority with obscure agenda), and second, and most important: it doesn't create seigniorage.
The biggest problem with a supply-changing currency is the seigniorage.  The seigniorage is lucrative, and goes to institutions and people which get something for nothing.  That creates corruption, and "want for more".  It is the fiat printing seigniorage that creates the bulk of the financial sector (which is the main beneficiary of the printing of money).

Across all currencies not subject to capital controls, the real interest rates are more or less identical.  The nominal rates depend upon their respective price stabilities, the more stable, the lower the nominal rate.

Of course, because they are expressed on loans expressed in that currency.  A loan expressed in a "price index" would have the interest rate that goes with the stability of that price index (which, by definition, is stable against itself, right !).

True, but indexing to the basket is more costly than simply relying upon a price stable currency itself.

I'm not sure if you include the cost of the structures built upon the seigniorage, and the damage they do (the financial institutions in other words), the risk induced by the corruption of the regulator and all that.

There are no benefits to supply stability and much cost reduction to price stability.

Yes, the advantages are huge: no seigniorage and no corruption of the regulator.

If this is a continuation of the above where a supply stable currency is used with an index, workers would quickly shun this regime for price stability.

I don't see why.  They get the same thing.  If I am paid 100 baskets, then I can buy 100 baskets with that.  If one day, these 100 baskets are worth 50 shinkels each, and the next month, they are worth 49 shinkels each, this wouldn't change anything for me, because the first month I receive 5000 shinkels, and the next month I receive 4900 shinkels.  But all prices have lowered too (as they are expressed in shinkels, but calculated in baskets).

It wouldn't change anything.

If every financial step in a worker's life has to be measured against a price index, they will surely be less productive for all of the conversions that have to be made for each trade.

What's the cost of a multiplication ?

If you can avoid a corrupt regulator, and a whole mass of people getting tons of seigniorage at your expenses, I would think that that balances largely out.

The workload for constantly referencing the index would be large and costly.  Price stable money removes that step for every single trade.

A number on a website and a multiplication is more costly than the price of half of the City ?

[GreenStox]

Your instinct to be suspicious of declarations of economic theory is completely rational.

However, when one makes an assertion of the relationship between the supply of money and the general price level, there is no other model than the quantity theory of money.  If we have no other model that can reliably show that relationship, that's the only one we can use.

That is an argument from ignorance to assume that 1 argument is true, because it hasn't been disproved yet.

I have to look into it more deeply but from what I can say at this point is that if the monetarists invented it, then take it with a grain of salt. I cant conclude it for sure, so i`ll have to analyze it more deeply. It would need perhaps real world examples, of pre-keynesian periods to test it for sure. Anything that was tested in the keynesian enviroment is most likely false, because the keynesian enviroment generates so many misleading variables that it's hard to conclude anything.

We are in complete agreement, but please remember that when I advocate for total price stability via dynamic control of the money supply, I'm not talking about government issued money which may never reach that ideal.  I'm talking about a private mechanism such as The Ideal Reserve where the holders of the money determine the supply themselves.  No outside influence is permitted via the security of cryptography.

With The Ideal Reserve, the accountholders are in complete republic control.

Then it must be automatically adjusted and hackproof.

Anything that has a voting system can be quickly influenced by financial tyrants. Democracy is too idealistic to become practical.
Almost all civilized countries are now democracies and look where we got with it.

That is a shame, and I hope for your own good that you come back to the dark side and seek a price stable currency, even if it isn't The Ideal Reserve.  I'll explain the relative benefits and costs in the next section.

As for higher level financial products, yes, they will almost never be stable more than a few minutes.  All financial products, even including insurance, follow a more or less variance gamma distribution, until of course something better than VG is discovered.  What that means is that their cost is a function of the mathematical moments: mean, variance, skew, kurtosis, etc.  If all moments are constant, there is no cost to holding the product except for marginal risk seeking.

A price stable currency is really just another financial product, but because it has no mathematical moments, it has no risk cost.  A price stable currency is a supply of no-risk or a reflection of the demand for risk aversion.

There is not such thing as a no risk instrument, it's impossible. Somehow, someway, risk will always be added into any equation, as the entropy of the instrument grows. Unforseen variables will always create "black swan" events that are most likely unforseen and unprepared for if you encourage investors to be risk takers.

If you encourage investors to invest in a risk-free currency, then they will risk alot, and when the black swan happens, it will cause a catastrophe.

Instead in a non-risk free currency investors will be always risk averse, so that no matter what happens they wont lose that much.

It`s a more realistic approach, than to hope for an idealistic holy grail of finance which has been shown time and time again that its impossible.

Price stability by definition never produces inflation, but yes it will create mountains of higher level finance, which is good.  Countries without credit are apocalypses; therefore, the more credit created under free conditions, the better.  Businesses can fund massive productions, and median home sizes skyrocket.

Supply stability will produce frequent chaotic inflations and deflations, ironic since the main justification for supply stability is to produce long run stable prices.  Take BTC, it has inflated enormously from the beginning of 2014 to now.  It's relative supply stability has made it impossible for sellers to truly price their products in BTC without being annihilated.

As for recession, I agree with the Keynesians: it is less desirable than expansion.  It ends there.  They believe that more inflation will stave off the crash, but it never does, and the 1970s showed that to the US.

Price stability will make recessions less frequent and with less magnitude.  Comparing the chaos of the commodity currencies pre-Fed vs the relative price stability of the Fed illustrates that.  Gold currencies caused massive collapses every few years, more frequent than the US's 5-10 years now, with weak expansions, compared to the "excessive" expansions the US now sees.

Of course it will, how are you going to stabilize the price. You must tamper with the supply of it, and when the price suddenly rises, you have to expand the money supply to slow down the bubble and return to a normal 45* angle increase.

Not if the market is huge enough. Yes a 100$ market cap can be manipulated by anybody, but can a 100 billion $ market cap be manipulated the same? For now it probably can since the financial parasites have too much money at their disposal.

However not in the future. As bitcoin's market cap will rise it will become more and more stable. Also the 10 minute transaction time will prevent flash crashes, and will slow down potential bubbles.

Also i tell you again, please not compare stuff to bitcoin yet, its only a newborn baby of currency, wait atleast 5-10 more years before making such assumptions. It needs more time to maturize, and to its market cap to rise to stable levels.

At this point bitcoin is for speculators, gamblers and long term investors, it needs more time to gain appeal of merchants

Average US profit margins average somewhere around 10%.  Almost no enterprise can achieve those levels, and none sustain them.

I heard from somewhere that Apple has about 1000% profit margins, because they produce it in China with slave labour.

Also the OPEC had ~1100% profit margin before the oil crash, they produced them at ~10$ a barrel i think, and sold it for about nearly 110$.

Of course only cartel enterprises have these levels because they hardly pay any tax and are exempt of regulation or they buy them, a regular business is taxed like a slave and harrassed by mobsters so called "inspectors" every month.

The financial sector provides an enormous service to an economy.  Countries with 1% finance are hellish places.  The richest countries are almost all finance.

The ideal proportions would be an economy almost exclusively made of finance and technology, but no legal system propriates primary research, so it will be a very long time until that ideal is realized.

During the 2008-2009 crash, people demanded credit heavily, yet the Fed created a situation where that was impossible.  As said on "Heat", "this shit sells itself".

Of course they do, their fractional system makes prices rise to an unaffordable level, and then they give the money stolen from us through inflation, back to us through lending it, what a masterpiece of scam.

First they rob us through inflation, then they give that money back in credits, and if somebody fails to pay it back, they steal real tangible assets from us aswell.

The only reason why financial sector countries perform well is because the ponzi scheme works, if we were to return to a real economy, the banking sector would shrink down to 1-2% where it should be.

Actually with bitcoins and digital currencies, we don't even need banks anymore.

Credit sector, sure, but only private, and either 100% reserve requirement, like with bitcoin, or some kind of mechanism that is decentralized and limits them from running the fractional ponzi again.

However I still prefer the bitcoin lending mechanism, 100% reserve, collateral % adjusted based on the 3 standard deviation of the risk of default, and the average lending rate.

So for example i got 1 bitcoin, I can lend out only 1 bitcoin or less, and my competitors average rate is 1%/ year, while the average risk of default on this rate is 50%, then I know that I can still give out 1 bitcoin in loans and (however diversified, in 0.05 btc packets) and i`ll still make profit, perhaps i`ll ask for 5-10% collateral just to make sure. It's all based on statistics and math.

Only the richest will ever be able to purchase adequate housing with wealth, yet they choose not to either.  Wealth can never purchase to the extent that credit can.

Builders may still profit without credit, but the profit would be smaller because there would be no credit to fund turnover.

Only in the keynesian world, because investing is heavily discouraged here. With the amount of inflation, hell its easier to get a loan and pay it back slowly.

If you want a house, but there are less to build them because profit is so low, you would find yourself very supportive of their existence.

Yes, the power over money is currently being stripped from central banks by cryptocurrencies.  It is unstoppable, but this has little to do with the question of price vs supply stability.

Supply stability will create frequent inflations that you loathe.  Price stability by definition never will.

Then the price of the house will drop, subsequently the price materials and the wages of the workers, so the profit margin will remain the same.

The only one hurt in this is the creditors, but who cares about them when their existence is not needed.

This is why they lobby against it, hopefully crypto currencies will end their greed.

BTC can only ever aspire to replace central banks, which it will not because it is too slow and price unstable.

Higher level financial layers will never go away unless if forbidden.  Large enterprises will almost always be more efficient at producing liabilities.

Yes but it's unneeded. A crypto bank is really useless, i`m not saying that it should not exist, they can do whatever they want, i let them have free market, but there wont be demand for it. People can easily store bitcoins on their PC, without a bank.

Sure there will be laymen who dont like to hold their money in their PC because they cant guard them safely agains hackers, so they will use online wallets which are actually banks with checking accounts.

But what if the government robs them or they got hacked? Nobody will guarantee their funds...

I like instrument layers, but i`m just pointing out that banking is not that much a necessity anymore, not to say that it's completely useless, but it has lost its significance already.

But the current banking system forces you to hold the money at them, either because burglars break into your house and stole the 1 billion dollar held under your pillow, or just because the inflation eats it away, so you must deposit it.

Also you cannot transfer it, the transfer fee of 1 billion dollar is about 2-3 million dollar + capital controls and other bullshit.

Also it's more convenient to buy things online, than to go out in the city and check every store for stuff.

So the BTC phenomenon combines the practical use of credit/debit cards to shop online, with the freedom given by laissez faire and 100% reserves, generating a convenient, easy to use and free economy! 

-----------------------------

I`ll respond to the other parts later, we are writing too much here, i`m feeling like i write a novel here!