4 ms·

"This sentence sounds like preaching." Yes, you are right, I was wondering whether to edit that sentence to sound less confident. :) I have no evidence, and I a

by nadam 9y ago

"This sentence sounds like preaching." Yes, you are right, I was wondering whether to edit that sentence to sound less confident. :) I have no evidence, and I am not an expert on this. I just think that if a currency is a utility currency, actually used by merchants and everyday users globally across a wide range of industries, countries and people, it has a huge market cap (it is the dominant currency of the world): I just don't see what could cause big fluctuations in its 'price'. (When you start to be the dominant currency 'price' becomes an interesting concept, because the 'relative to what?' aspect starts to be very significant.)

pjc50 9y ago
The expansion and contraction of the real economy causes a change in the demand for money, resulting in changes in the price level. This is usually summarised in the equation "MV=PQ"; see the economics literature for more detail on this. (This is independent of what the money actually is, and was a big problem with price fluctuations under the gold standard)
- nadam 9y ago
  Let's say we have a huge global cryptocurrency, that the whole world uses. If I understand well, when the economy expands, you can buy more BigMac for one unit, when the economy shrinks, you can buy less BigMac for one unit. What I am wondering now is whether is it something that needs to be avoided at all, (or can it be avoided in the long term at all).
  - littlestymaar 9y ago
    For bigmac it's not a big deal, but for investment it is. Imagine your company have 10 millions in cash, you could invest on a new machine to produce more (or better quality, or cheaper). But if you knew that the machine was going to cost you only 9 millions in 3 months. Will you buy it now even though you know it's only going to make you earn 300k in 3 months ? Of course not, you'll wait those 3 months. This is the problem with deflation, nobody wants to invest and people delay or reduce consumption. this really harms the economy.
    - paulgb 9y ago
      The Capitol Hill Babysitting Co-op is sometimes cited as an example of this. https://en.wikipedia.org/wiki/Capitol_Hill_Babysitting_Co-op https://en.wikipedia.org/wiki/Capitol_Hill_Babysitting_Co-op
      - littlestymaar 9y ago
        Never heard of that, thank you !
    - pseud0r 9y ago
      That would be an argument against stock market and interest rate as well. If a significant number of companies waited those 3 months to invest, there would be no deflation. The deflation will be the same as the increase in a stock market index.
      - littlestymaar 9y ago
        > If a significant number of companies waited those 3 months to invest, there would be no deflation. And little economic activities in the meantime (because all those investment deals wouldn't occur). At the equilibrium, you'll have zero deflation and a growth which is way below its potential (it could even be a recession, slowly converging toward zero growth). That sounds fantastic doesn't it ? I didn't understand you two other points though.
        pseud0r 9y ago
        If a cryptcurrency grows large enough to be the size of an economy, the value of the cryptocurrency should grow or shrink with the economy, like a stock market index. At that point keeping money in the cryptocurrency should be similar to keeping it in an index fund.
  - notahacker 9y ago
    When the economy does well you earn 20 CryptoUnits a year selling widgets. When the demand for widget falls the staff refuse to take a pay cut to 15 CryptoUnits a year and so the company introduces big layoffs instead. This is made worse because nobody's willing to lend the widget manufacturers part of the fixed supply of CryptoUnits, firstly because hoarding the coins is a less risky strategy with the same expected return even when the economy is doing well, and secondly because they're especially not keen to lend CryptoUnits when they're expecting goods to get cheaper in the future. Recessions happen with fiat too, they just can be a lot deeper when nobody can intervene to stabilise things and induce the people holding Crypto into lending and spending again or accepting real terms wage cuts.
- neilwilson 9y ago
  The economics literature is wrong. The quantity theory of money is cobblers - or rather the mainstream assumptions are. https://www.forbes.com/sites/johntharvey/2011/05/14/money-growth-does-not-cause-inflation/4/#1e42a9203c2c https://www.forbes.com/sites/johntharvey/2011/05/14/money-gr...

by nadam 9y ago

pjc50 9y ago

The expansion and contraction of the real economy causes a change in the demand for money, resulting in changes in the price level. This is usually summarised in the equation "MV=PQ"; see the economics literature for more detail on this. (This is independent of what the money actually is, and was a big problem with price fluctuations under the gold standard)

nadam 9y ago
Let's say we have a huge global cryptocurrency, that the whole world uses. If I understand well, when the economy expands, you can buy more BigMac for one unit, when the economy shrinks, you can buy less BigMac for one unit. What I am wondering now is whether is it something that needs to be avoided at all, (or can it be avoided in the long term at all).
- littlestymaar 9y ago
  For bigmac it's not a big deal, but for investment it is. Imagine your company have 10 millions in cash, you could invest on a new machine to produce more (or better quality, or cheaper). But if you knew that the machine was going to cost you only 9 millions in 3 months. Will you buy it now even though you know it's only going to make you earn 300k in 3 months ? Of course not, you'll wait those 3 months. This is the problem with deflation, nobody wants to invest and people delay or reduce consumption. this really harms the economy.
  - paulgb 9y ago
    The Capitol Hill Babysitting Co-op is sometimes cited as an example of this. https://en.wikipedia.org/wiki/Capitol_Hill_Babysitting_Co-op https://en.wikipedia.org/wiki/Capitol_Hill_Babysitting_Co-op
    - littlestymaar 9y ago
      Never heard of that, thank you !
  - pseud0r 9y ago
    That would be an argument against stock market and interest rate as well. If a significant number of companies waited those 3 months to invest, there would be no deflation. The deflation will be the same as the increase in a stock market index.
    - littlestymaar 9y ago
      > If a significant number of companies waited those 3 months to invest, there would be no deflation. And little economic activities in the meantime (because all those investment deals wouldn't occur). At the equilibrium, you'll have zero deflation and a growth which is way below its potential (it could even be a recession, slowly converging toward zero growth). That sounds fantastic doesn't it ? I didn't understand you two other points though.
      - pseud0r 9y ago
        If a cryptcurrency grows large enough to be the size of an economy, the value of the cryptocurrency should grow or shrink with the economy, like a stock market index. At that point keeping money in the cryptocurrency should be similar to keeping it in an index fund.
- notahacker 9y ago
  When the economy does well you earn 20 CryptoUnits a year selling widgets. When the demand for widget falls the staff refuse to take a pay cut to 15 CryptoUnits a year and so the company introduces big layoffs instead. This is made worse because nobody's willing to lend the widget manufacturers part of the fixed supply of CryptoUnits, firstly because hoarding the coins is a less risky strategy with the same expected return even when the economy is doing well, and secondly because they're especially not keen to lend CryptoUnits when they're expecting goods to get cheaper in the future. Recessions happen with fiat too, they just can be a lot deeper when nobody can intervene to stabilise things and induce the people holding Crypto into lending and spending again or accepting real terms wage cuts.
neilwilson 9y ago
The economics literature is wrong. The quantity theory of money is cobblers - or rather the mainstream assumptions are. https://www.forbes.com/sites/johntharvey/2011/05/14/money-growth-does-not-cause-inflation/4/#1e42a9203c2c https://www.forbes.com/sites/johntharvey/2011/05/14/money-gr...