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So people would wait forever until the prices of homes reaches $1? That seems unlikely. People would never buy anything then? Wouldn't they just wait until the

So people would wait forever until the prices of homes reaches $1? That seems unlikely. People would never buy anything then? Wouldn't they just wait until the price of something matches what they deem is fair value? And if it never goes down to a fair value, then they wouldn't buy it (that might include things like cryptocurrencies, huge TVs, Pets.com stock, and lots of nice-to-haves that waste a lot of resources but props up that vanity GDP metric and "boosts" the economy)

ufo 9y ago
The problem with deflation is that wages and income go down over time, which makes debts harder to pay off. This discourages investment. In your example, the problem is that it is harder to take a bitcoin-denominated loan to purchase a house because your bitcoin-denominated wages go down every year and eventually you can't pay off the interest anymore.
- AznHisoka 9y ago
  But wouldn't prices of goods go down too? Wouldn't that even things out with lower wages? You'll still be able to afford the same amount of stuff. Continuing the example of buying homes... wouldn't that be a good (or neutral) thing since it means we wouldn't have so many people speculating on real estate, and taking out easy loans to buy homes, leading to unhealthy increases in home prices?
  - ufo 9y ago
    Prices of goods go down, but the price of existing debts doesn't, which is the big problem. I agree that the housing market is not the ideal example but we need to look at debt in general when talking about deflation. In a deflationary setting, reduced lending reduces the speed that money moves around and depresses the economy. Business have trouble closing the book because falling prices of goods sold today are not enough to cover the cost of supplies from when they were manufactured a month ago. Periods of deflation have tended to go hand in hand with major economic busts, which is why modern monetary policy tries to avoid even the mildest form of deflation.
Terr_ 9y ago
$1 houses? What? I really don't understand what you're trying to say here. When FunBux are deflating, people who have FunBux (or are owed FunBux) tend to avoid spending if when they can, because its predicted future value is greater. In essence, it gradually stops behaving like a currency and is more like a commodity that they are holding for speculative purposes.
- AznHisoka 9y ago
  Prices for electronics and clothes are the cheapest on Black friday but there are many people who buy those things year round So how would that support your theory?
  - Terr_ 9y ago
    You post is a non-sequitur. What the heck does "Black Friday" marketing have to do with a fundamentally deflationary currency? Perhaps you've somehow gotten the idea that deflation means a currency is absolutely not spent in any amount under any circumstances, because the incentive is so strong that it overrides all other things that human may need or want? Because that's not at all what I said. People who can "afford" not to decrease their cache of DeflationBux will tend to avoid doing so, unless they're getting something they believe has a better future value. They are more likely to delay non-critical purchases or arrange deals that avoid that currency. And when that happens, the currency isn't really doing its job. You can have plenty of blood in your body, but it's a bad thing when a lot of it stops moving.
    - AznHisoka 9y ago
      If consumers delay non critical purchases, how is that bad? More money would flow into important things in society as a result and potentially less to things that probably arent needed on society (ie Angry Birds games, or selfie sticks). Those industries might go out of business and release more resources to the important ones. You say it isnt doing "its job"? but thats not a real reason. cigarettes arent doing its job if its stashed away and not smoked.
imtringued 9y ago
The problem is that certain goods like food can perish. By the time the price matches the fair value it's already gone.
- AznHisoka 9y ago
  People would never buy food even if they are starving until it is at their desired price?

ufo 9y ago

The problem with deflation is that wages and income go down over time, which makes debts harder to pay off. This discourages investment. In your example, the problem is that it is harder to take a bitcoin-denominated loan to purchase a house because your bitcoin-denominated wages go down every year and eventually you can't pay off the interest anymore.

AznHisoka 9y ago
But wouldn't prices of goods go down too? Wouldn't that even things out with lower wages? You'll still be able to afford the same amount of stuff. Continuing the example of buying homes... wouldn't that be a good (or neutral) thing since it means we wouldn't have so many people speculating on real estate, and taking out easy loans to buy homes, leading to unhealthy increases in home prices?
- ufo 9y ago
  Prices of goods go down, but the price of existing debts doesn't, which is the big problem. I agree that the housing market is not the ideal example but we need to look at debt in general when talking about deflation. In a deflationary setting, reduced lending reduces the speed that money moves around and depresses the economy. Business have trouble closing the book because falling prices of goods sold today are not enough to cover the cost of supplies from when they were manufactured a month ago. Periods of deflation have tended to go hand in hand with major economic busts, which is why modern monetary policy tries to avoid even the mildest form of deflation.

Terr_ 9y ago

$1 houses? What? I really don't understand what you're trying to say here. When FunBux are deflating, people who have FunBux (or are owed FunBux) tend to avoid spending if when they can, because its predicted future value is greater. In essence, it gradually stops behaving like a currency and is more like a commodity that they are holding for speculative purposes.

AznHisoka 9y ago
Prices for electronics and clothes are the cheapest on Black friday but there are many people who buy those things year round So how would that support your theory?
- Terr_ 9y ago
  You post is a non-sequitur. What the heck does "Black Friday" marketing have to do with a fundamentally deflationary currency? Perhaps you've somehow gotten the idea that deflation means a currency is absolutely not spent in any amount under any circumstances, because the incentive is so strong that it overrides all other things that human may need or want? Because that's not at all what I said. People who can "afford" not to decrease their cache of DeflationBux will tend to avoid doing so, unless they're getting something they believe has a better future value. They are more likely to delay non-critical purchases or arrange deals that avoid that currency. And when that happens, the currency isn't really doing its job. You can have plenty of blood in your body, but it's a bad thing when a lot of it stops moving.
  - AznHisoka 9y ago
    If consumers delay non critical purchases, how is that bad? More money would flow into important things in society as a result and potentially less to things that probably arent needed on society (ie Angry Birds games, or selfie sticks). Those industries might go out of business and release more resources to the important ones. You say it isnt doing "its job"? but thats not a real reason. cigarettes arent doing its job if its stashed away and not smoked.

imtringued 9y ago

The problem is that certain goods like food can perish. By the time the price matches the fair value it's already gone.

AznHisoka 9y ago
People would never buy food even if they are starving until it is at their desired price?