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And then everybody with a lot of money holds... And now what? Now the miniscule active share of the economy dictates the value of your holdings. You're thinking

And then everybody with a lot of money holds... And now what? Now the miniscule active share of the economy dictates the value of your holdings. You're thinking short term only. There's no deflation to be had with a shrinking economy. There's an equilibrium here, one that's past the point of hoarding for large players. If you can move the economy all by yourself, you do not want the risk of letting the economy moving on without you. Money sitting still does no good by itself. After all, what's the point of value you can't touch? There's no value in that... With inflation, you can grow your share of the economy from your position alone (increasing both value and "rank"). Deflation point allows your value to passively increase, not your share of the economy. And who is capable of performing arbitrage? Average Joe? Nope, inflation feeds people like on Wall Street since they get to spend the new money long before workers get their salary increases (after they feel effect of inflation on their expenses!).

Mikeb85 11y ago
> There's no deflation to be had with a shrinking economy. Deflation almost always accompanies economic downturns. It's literally defined as a decrease in prices, which is caused by a lack of demand. A recession is literally a reduction in economic activity. They go together by definition. https://en.wikipedia.org/wiki/Deflation#Deflationary_spiral https://en.wikipedia.org/wiki/Deflation#Deflationary_spiral Of course, that's a fairy simply definition, you can have inflation in a downturn when your currency devaluates, and the price of imported goods go up, which is a problem if you import too much. But the value of domestic assets is still going down, so measuring inflation/deflation does depend somewhat on what exactly you're measuring. > With inflation, you can grow your share of the economy from your position alone If you own assets you benefit from inflation. If you have cash, you lose from inflation. If you only have $1000, and the price of a business goes from $500-$1000 (inflation), you go from being able to buy 2, to only buying one. Cash loses. If the price deflates from $500-$100, you go from being able to buy 2 to buying 10. In the deflationary scenario, cash wins. If you already own a business, it's easier to guess which is better. You want the price to go up. > Nope, inflation feeds people like on Wall Street since they get to spend the new money long before workers get their salary increases (after they feel effect of inflation on their expenses!). You literally didn't read any information that I posted, did you? Central banks don't lend to banks to pay their bills or CEOs. They buy securities that are backed by real assets, and they generally prefer buying government bonds. > And who is capable of performing arbitrage? Average Joe? In this particular case, arbitrage is simply deciding who you're going to borrow from. If bank A offers a mortgage for 5%, and bank B for 6%, which loan are you going to take? This creates an incentive for both banks to lower their rate until a point where it's no longer profitable (ie. the rate that they're borrowing at). This is obviously a simplistic example, but should illustrate the point. On a macro scale, if the central bank offers loans at a certain rate, then other banks will match that rate, otherwise they lose business.
- Natanael_L 11y ago
  > it's literally defined as a decrease in prices, which is caused by a lack of demand. Correlation ≠ causation. In particular when practically every occurrence of deflation + a bad economy followed a crash in an economy built on debt. Have you considered that just like withdrawal symptoms, it isn't necessarily deflation that's the bad thing? If you have government contracts and buy assets using effectively subsidized money, your assets and value both grow in absolute numbers. You're buying with fresh money before it has been matched by a price signal in the economy, only then raising the price. With deflation only value grows, and only for as long as the economy stays alive. How does printed money enter the economy if it isn't used to buy anything? And the printers don't buy from everybody equally. Value is shifted from the entire society to those closest to the printers. And people not in a position to chose between loans or take any loans at all? I.e. below middle class?
  - Mikeb85 11y ago
    > In particular when practically every occurrence of deflation + a bad economy followed a crash in an economy built on debt. Have you considered that just like withdrawal symptoms, it isn't necessarily deflation that's the bad thing? A decrease in prices spurs demand so it can be a good thing. However, in the context of currency, you don't want the currency itself to have deflationary mechanisms. In bitcoin's case, there's an ever-increasing cost to mining the bitcoins. This means the value will naturally increase. Which discourages any sort of spending. The reason why a money supply that never increases is bad, is because human populations do increase. If more humans demand the same quantity of money, then those with money have the incentive to never spend. This negatively impacts the economy. This is why in any downturn, the central bank response to deflation is to increase the money supply. By making money cheaper, they're encouraging people to take advantage of cheaper asset prices. This in turn, spurs demand. > If you have government contracts and buy assets using effectively subsidized money, your assets and value both grow in absolute numbers. You're forgetting that the borrower owes money. > How does printed money enter the economy if it isn't used to buy anything? Of course it's used to buy things. No one takes out loans to simply hoard money, because there's a cost to the loan (and the cost of the loan will always be more than the cost of a no-risk asset). > Value is shifted from the entire society to those closest to the printers. This is conspiracy thinking at it's finest. No one gets 'free' money. It all has to be paid back at some point. Value goes to those who engage in constructive activities. Loans are a way to shift unused capital to constructive activities. And no, no one has to take out a loan. You can accrue capital in other ways. However the lending system makes the whole economy more efficient.

Mikeb85 11y ago

> There's no deflation to be had with a shrinking economy. Deflation almost always accompanies economic downturns. It's literally defined as a decrease in prices, which is caused by a lack of demand. A recession is literally a reduction in economic activity. They go together by definition. https://en.wikipedia.org/wiki/Deflation#Deflationary_spiral https://en.wikipedia.org/wiki/Deflation#Deflationary_spiral Of course, that's a fairy simply definition, you can have inflation in a downturn when your currency devaluates, and the price of imported goods go up, which is a problem if you import too much. But the value of domestic assets is still going down, so measuring inflation/deflation does depend somewhat on what exactly you're measuring. > With inflation, you can grow your share of the economy from your position alone If you own assets you benefit from inflation. If you have cash, you lose from inflation. If you only have $1000, and the price of a business goes from $500-$1000 (inflation), you go from being able to buy 2, to only buying one. Cash loses. If the price deflates from $500-$100, you go from being able to buy 2 to buying 10. In the deflationary scenario, cash wins. If you already own a business, it's easier to guess which is better. You want the price to go up. > Nope, inflation feeds people like on Wall Street since they get to spend the new money long before workers get their salary increases (after they feel effect of inflation on their expenses!). You literally didn't read any information that I posted, did you? Central banks don't lend to banks to pay their bills or CEOs. They buy securities that are backed by real assets, and they generally prefer buying government bonds. > And who is capable of performing arbitrage? Average Joe? In this particular case, arbitrage is simply deciding who you're going to borrow from. If bank A offers a mortgage for 5%, and bank B for 6%, which loan are you going to take? This creates an incentive for both banks to lower their rate until a point where it's no longer profitable (ie. the rate that they're borrowing at). This is obviously a simplistic example, but should illustrate the point. On a macro scale, if the central bank offers loans at a certain rate, then other banks will match that rate, otherwise they lose business.

Natanael_L 11y ago
> it's literally defined as a decrease in prices, which is caused by a lack of demand. Correlation ≠ causation. In particular when practically every occurrence of deflation + a bad economy followed a crash in an economy built on debt. Have you considered that just like withdrawal symptoms, it isn't necessarily deflation that's the bad thing? If you have government contracts and buy assets using effectively subsidized money, your assets and value both grow in absolute numbers. You're buying with fresh money before it has been matched by a price signal in the economy, only then raising the price. With deflation only value grows, and only for as long as the economy stays alive. How does printed money enter the economy if it isn't used to buy anything? And the printers don't buy from everybody equally. Value is shifted from the entire society to those closest to the printers. And people not in a position to chose between loans or take any loans at all? I.e. below middle class?
- Mikeb85 11y ago
  > In particular when practically every occurrence of deflation + a bad economy followed a crash in an economy built on debt. Have you considered that just like withdrawal symptoms, it isn't necessarily deflation that's the bad thing? A decrease in prices spurs demand so it can be a good thing. However, in the context of currency, you don't want the currency itself to have deflationary mechanisms. In bitcoin's case, there's an ever-increasing cost to mining the bitcoins. This means the value will naturally increase. Which discourages any sort of spending. The reason why a money supply that never increases is bad, is because human populations do increase. If more humans demand the same quantity of money, then those with money have the incentive to never spend. This negatively impacts the economy. This is why in any downturn, the central bank response to deflation is to increase the money supply. By making money cheaper, they're encouraging people to take advantage of cheaper asset prices. This in turn, spurs demand. > If you have government contracts and buy assets using effectively subsidized money, your assets and value both grow in absolute numbers. You're forgetting that the borrower owes money. > How does printed money enter the economy if it isn't used to buy anything? Of course it's used to buy things. No one takes out loans to simply hoard money, because there's a cost to the loan (and the cost of the loan will always be more than the cost of a no-risk asset). > Value is shifted from the entire society to those closest to the printers. This is conspiracy thinking at it's finest. No one gets 'free' money. It all has to be paid back at some point. Value goes to those who engage in constructive activities. Loans are a way to shift unused capital to constructive activities. And no, no one has to take out a loan. You can accrue capital in other ways. However the lending system makes the whole economy more efficient.