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A simple argument is as follows. Without inflation, i.e. fixed money supply, it would be impossible for a majority of loans to be repaid with interest, or give
by algo646464 8y ago
A simple argument is as follows.
Without inflation, i.e. fixed money supply, it would be impossible for a majority of loans to be repaid with interest, or give a positive return to investments.
Note that this fact is independent of how well the borrower or business performs. (This is like a zero-sum game).
So, it would be irrational for investors or lenders to part with their deflationary money, as the net profit is always zero (or negative because of other costs).
I am very interested to know if there is a way around this problem.
- mkirklions 8y agoBitcoin wouldnt be the currency for loans. Bitcoin seems to be best for hording and spending. It holds value and can be transferred easy and cheap. You can still have companies using currencies that incentivise loan/investing. Bitcoin currently exists and the loans keep being written. I think as bitcoin grows its going to become big and boring. No 10x gains, not even 2x gains, like 10% swings over the course of a year. It wont be fun, it will be a store of value if you dont trust fiat. Right now I think its crazy undervalued which is causing the explosion of crypto. As BTC gets bigger, investment will start to look better as it provides better returns.
- astrodust 8y ago> As BTC gets bigger... It can't get any bigger, the transaction limits, the "halvings", the liquidity issues after over a decade of operation, so I guess that experiment has run its course.
- PKop 8y agoA solution I've heard to this problem is selling equity instead of debt.
- kolinko 8y agoThat's the theory. But the practice has shown that people who have Bitcoin spend it both on their living expenses, and on investments. Ergo, there must be a hole in your theory somewhere.
- s73v3r_ 8y agoHas it? I seriously doubt this.
- theseatoms 8y agoA deflationary currency regime would raises the bar for both investment and consumption. Investors would be choosier about speculative opportunities because the yield on the risk-free asset would be much, much higher. Consumers would still buy essentials, but they'd be extremely incentivized to hold currency rather than spend it. Regardless of whether or not a deflationary end-state is better or worse, it seems non-controversial that the transition from our current situation to a deflationary one would be absolutely brutal. We're talking about turning the global economy on it's head.
- algo646464 8y ago> Investors would be choosier about speculative opportunities because the yield on the risk-free asset would be much, much higher. It won't help how choosy investors are, or how well the economy performs. The money supply is fixed. So for someone to make 120 bitcoins from an investment of 100 bitcoins, someone else has to lose 20 bitcoins, which would be other investors, or the public (workers / consumers).
- a_tractor 8y agoAre you saying that with an inflationary system, where the money supply is not fixed, for someone to make 120 dollars from 100, the 20 extra dollars comes from.... where? Thin air? The alternative to inflationary currency is not zero-sum. For someone to make 120 bitcoins from an investment of 100 bitcoins, that investment would have to actually produce 20 bitcoins of value, and that person has to get people to pay the higher price for something he has improved or created with it. That is the whole idea. Its how most economies worked up until 1913 or so. We built civilization without "inflation." Anyway, I would say it is less about deflationary vs inflationary, and more about transparency of control (even if automated) of the money supply, a movement away from usury and debt based fiat (which would be a return to a value based system), and finally, decentralization of value exchange.
- TomMarius 8y agoOr Bitcoin grows its value.