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Deflation isn’t guaranteed. Eventually people need to spend. A currency with fixed supply certainly encourages saving. Why is that a bad thing?

DontTrustOver25 9y ago
Depends what you consider "saving". Stuffing money under your mattress is useless but if you save with a bank or in a fund that money is still being cycled back into the economy. Deflation essentially means you could stuff money under your mattress and still come out with something more valuable with none of the associated risk leaving piles of cash sitting out of the market.
once_inc 9y ago
Because banks don't want us to save, they want us to _borrow_.
- etr-strike 9y ago
  How is that an argument for inflation?
pimmen 9y ago
Because if you're saving your money, you're not doing anything constructive at all. I sure as hell don't want people saving their money, I want people to invest their money. Wether it's a savings account, a 401k or a revolutionary business idea everything is better for society than your mattress. And people won't invest in anything today when they can invest more tomorrow, but then they'll wait until after tomorrow, or the day after that, or not at all because they reached that time when they eventually have to spend (which would mean they're broke, which is bad).
- etr-strike 9y ago
  I don’t buy your argument. People will still invest because investment generates a return on their money. Additionally, if the savings rate becomes too high the government has the ability to tax and reinvest that revenue as appropriate. Inflation is a hidden tax that impacts the poor and middle classes the most. Worse, wealthy people have the means to escape inflation. Today the worlds weathiest simply buy land and property. Is that the sort of “investment” you’re cheering for as a positive result of inflation?
  - pimmen 9y ago
    The problem is that with a deflationary currency, the only risk you run into is if the amount of stuff drops because that's the only way this global currency would drop in value; the perceived amount of stuff it could buy drops. Every other investment has much greater risks, so why would people chose them? And what's saying the return would be higher for that stuff anyway when everyone's saving rather than spending, why would anyone spend their money on the output of your investment? Not saying you're wrong, I'm saying there's a very high likelihood it won't result in investments, far higher than I would like. And it's good that you brought up land and property because that's exactly what I don't want people to invest in (unless they actually want to use it for production, like renting it out to people or companies) but housing is something a lot of people do invest in for retirement, especially in my country. I would much rather people invested it in their 401k, a mutual fund, their business idea, bonds or whatever would enable production. Inflation is a tax on people who have money in their mattresses, if you invest money rather than save it you will beat inflation over your life. That's what I want people to be incentivized to do, not to pile them up or freeze them in status symbols like homes. And inflation can actually help the poor, it makes it much easier for them to pay off their debts as the principal decreases in value. It's the main reason poor farmers fought for bimetalism in Gilded Age America because rich bankers were making a killing on low inflation.
- equalunique 9y ago
  Saving is investment, as long as you mean it in terms of a bank account & fractional reserve banking, in which case banks just re-lend that money to someone else as for example a loan or mortgage.
  - pimmen 9y ago
    The only reason saving it in a bank account is an investment is because more people are borrowing than saving, thus the bank makes money and gives you a share of the profits (that's your saving's interest). If everybody's saving, nobody gets any return on it and all that money does absolutely nothing for society at all.
- TheGrassyKnoll 9y ago
  It appears that Bitcoin has turned into a $100 billion mattress.
- hndamien 9y ago
  This isn't true, if you are saving it you are reducing supply and driving the price up. This gives economic opportunity to other savers who at some point may try and build or sell something that has a greater rate of return than the deflation rate.
  - pimmen 9y ago
    No, you're reducing the supply of the currency, you're not reducing the supply of stuff the currency can buy. If the amount of stuff drops but the currency stays the same, the price increases but if the amount of stuff the currency can buy increases but the currency stays the same (as in, the number of Bitcoins have capped) the price drops. If other people build something or sell something they increase the supply of stuff which makes the prices drop if the currency stays the same. In other words, they're less incentivized to build or sell something (since selling and building has costs) than just keeping the money themselves in their mattress if the amount of currency is fixed.

DontTrustOver25 9y ago

Depends what you consider "saving". Stuffing money under your mattress is useless but if you save with a bank or in a fund that money is still being cycled back into the economy. Deflation essentially means you could stuff money under your mattress and still come out with something more valuable with none of the associated risk leaving piles of cash sitting out of the market.

once_inc 9y ago

Because banks don't want us to save, they want us to _borrow_.

etr-strike 9y ago
How is that an argument for inflation?

pimmen 9y ago

Because if you're saving your money, you're not doing anything constructive at all. I sure as hell don't want people saving their money, I want people to invest their money. Wether it's a savings account, a 401k or a revolutionary business idea everything is better for society than your mattress. And people won't invest in anything today when they can invest more tomorrow, but then they'll wait until after tomorrow, or the day after that, or not at all because they reached that time when they eventually have to spend (which would mean they're broke, which is bad).

etr-strike 9y ago
I don’t buy your argument. People will still invest because investment generates a return on their money. Additionally, if the savings rate becomes too high the government has the ability to tax and reinvest that revenue as appropriate. Inflation is a hidden tax that impacts the poor and middle classes the most. Worse, wealthy people have the means to escape inflation. Today the worlds weathiest simply buy land and property. Is that the sort of “investment” you’re cheering for as a positive result of inflation?
- pimmen 9y ago
  The problem is that with a deflationary currency, the only risk you run into is if the amount of stuff drops because that's the only way this global currency would drop in value; the perceived amount of stuff it could buy drops. Every other investment has much greater risks, so why would people chose them? And what's saying the return would be higher for that stuff anyway when everyone's saving rather than spending, why would anyone spend their money on the output of your investment? Not saying you're wrong, I'm saying there's a very high likelihood it won't result in investments, far higher than I would like. And it's good that you brought up land and property because that's exactly what I don't want people to invest in (unless they actually want to use it for production, like renting it out to people or companies) but housing is something a lot of people do invest in for retirement, especially in my country. I would much rather people invested it in their 401k, a mutual fund, their business idea, bonds or whatever would enable production. Inflation is a tax on people who have money in their mattresses, if you invest money rather than save it you will beat inflation over your life. That's what I want people to be incentivized to do, not to pile them up or freeze them in status symbols like homes. And inflation can actually help the poor, it makes it much easier for them to pay off their debts as the principal decreases in value. It's the main reason poor farmers fought for bimetalism in Gilded Age America because rich bankers were making a killing on low inflation.
equalunique 9y ago
Saving is investment, as long as you mean it in terms of a bank account & fractional reserve banking, in which case banks just re-lend that money to someone else as for example a loan or mortgage.
- pimmen 9y ago
  The only reason saving it in a bank account is an investment is because more people are borrowing than saving, thus the bank makes money and gives you a share of the profits (that's your saving's interest). If everybody's saving, nobody gets any return on it and all that money does absolutely nothing for society at all.
TheGrassyKnoll 9y ago
It appears that Bitcoin has turned into a $100 billion mattress.
hndamien 9y ago
This isn't true, if you are saving it you are reducing supply and driving the price up. This gives economic opportunity to other savers who at some point may try and build or sell something that has a greater rate of return than the deflation rate.
- pimmen 9y ago
  No, you're reducing the supply of the currency, you're not reducing the supply of stuff the currency can buy. If the amount of stuff drops but the currency stays the same, the price increases but if the amount of stuff the currency can buy increases but the currency stays the same (as in, the number of Bitcoins have capped) the price drops. If other people build something or sell something they increase the supply of stuff which makes the prices drop if the currency stays the same. In other words, they're less incentivized to build or sell something (since selling and building has costs) than just keeping the money themselves in their mattress if the amount of currency is fixed.