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> - Constrained supply means protection against inflationist central banks. This keeps being touted as a feature, but unless you are Zimbabwe it is a bug. "Sup

by tbabb 8y ago

> - Constrained supply means protection against inflationist central banks. This keeps being touted as a feature, but unless you are Zimbabwe it is a bug. "Supply-constrained" means "demand-driven price" which means "volatile." A useful currency is one that measures wealth consistency, like a meter stick. You don't want your money to mis-count your wealth. Hoping that it will mis-count your wealth in your favor is speculation, which is a bad, dangerous role for currency. You want to know that you can afford rent/bread next month (to say nothing of being able to pay your workers or business partners). These are more fatal, fundamental design problems than low transaction rates or questionable usage-- they are built into the very philosophy of cryptocurrency. Explained in more detail here: https://www.bzarg.com/p/what-bitcoin-shows-us-about-how-money-works/ https://www.bzarg.com/p/what-bitcoin-shows-us-about-how-mone...

roenxi 8y ago
> A useful currency is one that measures wealth consistency, like a meter stick Currency doesn't measure wealth consistently, and makes a terrible measuring stick. That is a great analogy to take literally - most of the developed world cuts 2% off our monetary measuring stick per annum as a matter of policy. or people who aren't unusually interested in maths and finance (ie, most people) that is highly confusing, because they set their expectations then think that somehow they are getting ahead if they get a 1-2% pay raise.
- tbabb 8y ago
  That is yet another feature which is mistaken by crypto advocates for a bug. The 2% per annum is deliberate and useful; it means you have economic incentive to put your wealth to work on creating things-- new businesses, technology, public infrastructure-- by investing it, rather than passively sitting on it. Imagine the reverse: a deflationary currency, which becomes more valuable over time. You would have little choice but to hold on to your wealth to avoid missing out on the gains. Why would you spend your money building a business or hiring workers? That would be a losing proposition compared to keeping a bank account which grows if it just sits there. Deflationary circumstances were, in fact, what precipitated the great depression. 2% is a gentle nudge to participate in the economy. This is addressed and elucidated in the linked article.
  - jhoechtl 8y ago
    > The 2% per annum is deliberate and useful; it means you have economic incentive to put your wealth to work on creating things-- new businesses, technology, public infrastructure-- by investing it, rather than passively sitting on it. I think that's what the child poster meant by bug. It's artificial and still: Why? Mankind came to what it is 99.9% of time without artificial devaluation.
    - TomVDB 8y ago
      > Mankind came to what it is 99.9% of time without artificial devaluation. Mankind came to what it is 99.999% of time without antibiotics too. Arguments like this are rarely constructive.
    - bildung 8y ago
      > Mankind came to what it is 99.9% of time without artificial devaluation. Because productivity was practically constant for this 99.9% of human history. Therefore the monetary base could be practically constant, too. With the industrial revolution, growth became obviously exponential. Have a look at the following graph (nominal GDP): http://3.bp.blogspot.com/_VO-2HbQsbSU/S9BbLF6MxBI/AAAAAAAAARw/ctyCSuzVJdA/s1600/PubDebtGDP.bmp http://3.bp.blogspot.com/_VO-2HbQsbSU/S9BbLF6MxBI/AAAAAAAAAR... Or this one (real gdp): https://ourworldindata.org/uploads/2013/11/GDP-per-capita-in-the-uk-since-1270.png https://ourworldindata.org/uploads/2013/11/GDP-per-capita-in... Inflation means the value of money stays coupled to the changes in GDP, just as in the millenia you apparently value for exactly this constant money <> gdp relationship.
    - dTal 8y ago
      No, we had natural devaluation. Most resources, hoarded away, will spoil. Everything has an expiry date, even social capital - do me a favour today, and I might return the favour tomorrow. But by next year I'll have forgotten about it. It makes sense, really. Why should finding a old penny under the floorboards, nearly worthless when it was minted, make you rich?
  - nostrademons 8y ago
    "Imagine the reverse: a deflationary currency, which becomes more valuable over time." This describes the U.S. dollar from 1870-1890, but this was hardly a time of economic and technological stagnation: https://en.wikipedia.org/wiki/The_Great_Deflation https://en.wikipedia.org/wiki/The_Great_Deflation https://en.wikipedia.org/wiki/Second_Industrial_Revolution https://en.wikipedia.org/wiki/Second_Industrial_Revolution Far from people holding on to their wealth to avoid missing out on the gains, they invested it heavily to avoid missing out on even bigger gains from being part of the technological revolution happening around them. Deflation was then a consequence (rather than a cause) of the economic growth that followed: with a constant money supply but more goods available for purchase, the price per good steadily fell.
- cloudhead 8y ago
  Can you explain what is confusing about it?
  - roenxi 8y ago
    If you get were paid $100/hr 5 years ago and are being paid $110/hr today, then you need to have a pretty reasonable idea of economic policy and being able to use enough mathematics to calculate that you are being paid exactly the same amount. I expect most people on HN wouldn't really struggle with that, but that is because this is a forum infested with scientists, engineers, businesspersons and financiers. Most people won't be able to grasp that being paid $100/hr 5 years ago and $105/hr today means they have taken a pay cut. They would struggle to correctly calculate what the break-even rate would be.
- imtringued 8y ago
  Inflation is a tax on wealth. Deflation is a tax on income. With inflation those who get a 2% pay raise stay where they are and those who have wealth lose some and are incentivized to turn it into income which eventually becomes a pay raise. With deflation people are incentivized to turn their income into wealth which means less pay raises. Meanwhile those who have wealth gain some without doing anything.
  - chii 8y ago
    with deflation, you will only invest in good, safe investments. Taking risks gives less rewards, so you should end up with less speculation and wasted investments. I think deflation makes for a more stable financial world, as it will take away the booms and busts cycles. Economic growth only occurs when real technological and productivity improvements happen, rather than the current way of speculation and wealth redistribution via betting on boom/bust cycles.
siwatanejo 8y ago
> unless you are Zimbabwe That's like saying "it's fine if you rob me 2%, but please don't surpass it". See: https://twitter.com/ErikVoorhees/status/1110030668715614208 https://twitter.com/ErikVoorhees/status/1110030668715614208
- stouset 8y ago
  This anti-inflationary nonsense is the antivax of the finance world. There’s a huge reason it’s done essentially universally, but nobody alive had to live through the chaos that inflationary monetary policy was borne from. It’s fine to think that there might be other, better approaches to solving those problems. It’s fine to argue that central banks might not always act with the best interests of the economy at heart. But pretending like those problems weren’t real and that we don’t need any of it—as the financially-illiterate cryptocurrency community seems to do—is absurd.
  - siwatanejo 8y ago
    Give it time, and the banks&governments that create money from thin-air will actually be the ones seen as the anti-vaxxers of the finance world instead, very soon.
  - dnautics 8y ago
    > but nobody alive had to live through the chaos that inflationary monetary policy was borne from. This is a dangerous narrative. By strictly econometric measures, the 2008 crisis was not too far off of, say, the great depression. By and large, I wonder if the reason why people aren't dying on the streets (aka "chaos"), etc, is because we have reliable sources of food, access to medicine, etc.
  - millettjon 8y ago
    Are the people of Venezuela not living through chaos? Outside of the US, EU, and a handful of other countries, the rest of the world is fairly chaotic.
  - gdhbcc 8y ago
    The reason why it's done essentially universally is not necessarily because it is good for the economy in general, it needs only to be good for those who control the issuing of currency (governments). And it is beneficial for them to do so simply because it enables them to spend more without having to take unpopular measures like raising taxes. I have read the vast majority of the arguments for having inflation or deflation and to be perfectly honest I find most of them to be unconvincing and essentially boil down to "it's good because its good". Both inflation, deflation and stagflation have their benefits and drawbacks and they all have a place and should all be used, because economic scenarios and circumstances differ over time and place. To state that we should all have at all times everywhere 2% inflation is dumb, dangerous and frankly if you hold that sort of view you have no business being anywhere near monetary policy because you're not an economist, you're a priest.
jerguismi 8y ago
> Hoping that it will mis-count your wealth in your favor is speculation, which is a bad, dangerous role for currency. Speculation is rampant also with traditional currencies - I remember seeing reports where 80-90% of trades in traditional forex markets were classified as speculative. I personally think there is a lot benefits from speculators. Speculators create pricing signals, help price things more effectively and create better liquidity. All market participants benefit from better pricing and liquidity. The more we have speculators on the market, the better priced things we have on the market and that in the long term means stability and predictability.
- ForHackernews 8y ago
  The difference is that speculative traders in a normal market are making bets about an actual real underlying value. A share in a company represents some productive asset, a USD can be used to pay tax obligations, even gold has industrial applications. What is driving the value of a bitcoin?
  - dragonwriter 8y ago
    > The difference is that speculative traders in a normal market are making bets about an actual real underlying value. No, they are making bets about future market value. Ideas about “underlying” value are just a subset of the potential inputs to such a bet, but they are not what the bet is fundamentally on.
  - jerguismi 8y ago
    > What is driving the value of a bitcoin? No one knows, maybe some have same theory of value and that's why there is speculation? I see nothing special in bitcoin, it is just one of the numerous things that the market tries to value. If the market is only speculation the value should go to zero in the long term. If there is some value in addition to speculation, the value should be non-zero - and it is left to the markets to decide, what the actual value is.
- friendzis 8y ago
  > Speculators create pricing signals, help price things more effectively and create better liquidity. Care to elaborate on the liquidity part? I fully agree that forex speculators play significant role in price (exchange rate in this case) discovery. Although, the money used for speculation is essentially locked up in the price discovery mechanism and if anything that reduces liquidity available to actual economy.

by tbabb 8y ago

roenxi 8y ago

> A useful currency is one that measures wealth consistency, like a meter stick Currency doesn't measure wealth consistently, and makes a terrible measuring stick. That is a great analogy to take literally - most of the developed world cuts 2% off our monetary measuring stick per annum as a matter of policy. or people who aren't unusually interested in maths and finance (ie, most people) that is highly confusing, because they set their expectations then think that somehow they are getting ahead if they get a 1-2% pay raise.

tbabb 8y ago
That is yet another feature which is mistaken by crypto advocates for a bug. The 2% per annum is deliberate and useful; it means you have economic incentive to put your wealth to work on creating things-- new businesses, technology, public infrastructure-- by investing it, rather than passively sitting on it. Imagine the reverse: a deflationary currency, which becomes more valuable over time. You would have little choice but to hold on to your wealth to avoid missing out on the gains. Why would you spend your money building a business or hiring workers? That would be a losing proposition compared to keeping a bank account which grows if it just sits there. Deflationary circumstances were, in fact, what precipitated the great depression. 2% is a gentle nudge to participate in the economy. This is addressed and elucidated in the linked article.
- jhoechtl 8y ago
  > The 2% per annum is deliberate and useful; it means you have economic incentive to put your wealth to work on creating things-- new businesses, technology, public infrastructure-- by investing it, rather than passively sitting on it. I think that's what the child poster meant by bug. It's artificial and still: Why? Mankind came to what it is 99.9% of time without artificial devaluation.
  - TomVDB 8y ago
    > Mankind came to what it is 99.9% of time without artificial devaluation. Mankind came to what it is 99.999% of time without antibiotics too. Arguments like this are rarely constructive.
  - bildung 8y ago
    > Mankind came to what it is 99.9% of time without artificial devaluation. Because productivity was practically constant for this 99.9% of human history. Therefore the monetary base could be practically constant, too. With the industrial revolution, growth became obviously exponential. Have a look at the following graph (nominal GDP): http://3.bp.blogspot.com/_VO-2HbQsbSU/S9BbLF6MxBI/AAAAAAAAARw/ctyCSuzVJdA/s1600/PubDebtGDP.bmp http://3.bp.blogspot.com/_VO-2HbQsbSU/S9BbLF6MxBI/AAAAAAAAAR... Or this one (real gdp): https://ourworldindata.org/uploads/2013/11/GDP-per-capita-in-the-uk-since-1270.png https://ourworldindata.org/uploads/2013/11/GDP-per-capita-in... Inflation means the value of money stays coupled to the changes in GDP, just as in the millenia you apparently value for exactly this constant money <> gdp relationship.
  - dTal 8y ago
    No, we had natural devaluation. Most resources, hoarded away, will spoil. Everything has an expiry date, even social capital - do me a favour today, and I might return the favour tomorrow. But by next year I'll have forgotten about it. It makes sense, really. Why should finding a old penny under the floorboards, nearly worthless when it was minted, make you rich?
- nostrademons 8y ago
  "Imagine the reverse: a deflationary currency, which becomes more valuable over time." This describes the U.S. dollar from 1870-1890, but this was hardly a time of economic and technological stagnation: https://en.wikipedia.org/wiki/The_Great_Deflation https://en.wikipedia.org/wiki/The_Great_Deflation https://en.wikipedia.org/wiki/Second_Industrial_Revolution https://en.wikipedia.org/wiki/Second_Industrial_Revolution Far from people holding on to their wealth to avoid missing out on the gains, they invested it heavily to avoid missing out on even bigger gains from being part of the technological revolution happening around them. Deflation was then a consequence (rather than a cause) of the economic growth that followed: with a constant money supply but more goods available for purchase, the price per good steadily fell.
cloudhead 8y ago
Can you explain what is confusing about it?
- roenxi 8y ago
  If you get were paid $100/hr 5 years ago and are being paid $110/hr today, then you need to have a pretty reasonable idea of economic policy and being able to use enough mathematics to calculate that you are being paid exactly the same amount. I expect most people on HN wouldn't really struggle with that, but that is because this is a forum infested with scientists, engineers, businesspersons and financiers. Most people won't be able to grasp that being paid $100/hr 5 years ago and $105/hr today means they have taken a pay cut. They would struggle to correctly calculate what the break-even rate would be.
imtringued 8y ago
Inflation is a tax on wealth. Deflation is a tax on income. With inflation those who get a 2% pay raise stay where they are and those who have wealth lose some and are incentivized to turn it into income which eventually becomes a pay raise. With deflation people are incentivized to turn their income into wealth which means less pay raises. Meanwhile those who have wealth gain some without doing anything.
- chii 8y ago
  with deflation, you will only invest in good, safe investments. Taking risks gives less rewards, so you should end up with less speculation and wasted investments. I think deflation makes for a more stable financial world, as it will take away the booms and busts cycles. Economic growth only occurs when real technological and productivity improvements happen, rather than the current way of speculation and wealth redistribution via betting on boom/bust cycles.

siwatanejo 8y ago

> unless you are Zimbabwe That's like saying "it's fine if you rob me 2%, but please don't surpass it". See: https://twitter.com/ErikVoorhees/status/1110030668715614208 https://twitter.com/ErikVoorhees/status/1110030668715614208

stouset 8y ago
This anti-inflationary nonsense is the antivax of the finance world. There’s a huge reason it’s done essentially universally, but nobody alive had to live through the chaos that inflationary monetary policy was borne from. It’s fine to think that there might be other, better approaches to solving those problems. It’s fine to argue that central banks might not always act with the best interests of the economy at heart. But pretending like those problems weren’t real and that we don’t need any of it—as the financially-illiterate cryptocurrency community seems to do—is absurd.
- siwatanejo 8y ago
  Give it time, and the banks&governments that create money from thin-air will actually be the ones seen as the anti-vaxxers of the finance world instead, very soon.
- dnautics 8y ago
  > but nobody alive had to live through the chaos that inflationary monetary policy was borne from. This is a dangerous narrative. By strictly econometric measures, the 2008 crisis was not too far off of, say, the great depression. By and large, I wonder if the reason why people aren't dying on the streets (aka "chaos"), etc, is because we have reliable sources of food, access to medicine, etc.
- millettjon 8y ago
  Are the people of Venezuela not living through chaos? Outside of the US, EU, and a handful of other countries, the rest of the world is fairly chaotic.
- gdhbcc 8y ago
  The reason why it's done essentially universally is not necessarily because it is good for the economy in general, it needs only to be good for those who control the issuing of currency (governments). And it is beneficial for them to do so simply because it enables them to spend more without having to take unpopular measures like raising taxes. I have read the vast majority of the arguments for having inflation or deflation and to be perfectly honest I find most of them to be unconvincing and essentially boil down to "it's good because its good". Both inflation, deflation and stagflation have their benefits and drawbacks and they all have a place and should all be used, because economic scenarios and circumstances differ over time and place. To state that we should all have at all times everywhere 2% inflation is dumb, dangerous and frankly if you hold that sort of view you have no business being anywhere near monetary policy because you're not an economist, you're a priest.

jerguismi 8y ago

> Hoping that it will mis-count your wealth in your favor is speculation, which is a bad, dangerous role for currency. Speculation is rampant also with traditional currencies - I remember seeing reports where 80-90% of trades in traditional forex markets were classified as speculative. I personally think there is a lot benefits from speculators. Speculators create pricing signals, help price things more effectively and create better liquidity. All market participants benefit from better pricing and liquidity. The more we have speculators on the market, the better priced things we have on the market and that in the long term means stability and predictability.

ForHackernews 8y ago
The difference is that speculative traders in a normal market are making bets about an actual real underlying value. A share in a company represents some productive asset, a USD can be used to pay tax obligations, even gold has industrial applications. What is driving the value of a bitcoin?
- dragonwriter 8y ago
  > The difference is that speculative traders in a normal market are making bets about an actual real underlying value. No, they are making bets about future market value. Ideas about “underlying” value are just a subset of the potential inputs to such a bet, but they are not what the bet is fundamentally on.
- jerguismi 8y ago
  > What is driving the value of a bitcoin? No one knows, maybe some have same theory of value and that's why there is speculation? I see nothing special in bitcoin, it is just one of the numerous things that the market tries to value. If the market is only speculation the value should go to zero in the long term. If there is some value in addition to speculation, the value should be non-zero - and it is left to the markets to decide, what the actual value is.
friendzis 8y ago
> Speculators create pricing signals, help price things more effectively and create better liquidity. Care to elaborate on the liquidity part? I fully agree that forex speculators play significant role in price (exchange rate in this case) discovery. Although, the money used for speculation is essentially locked up in the price discovery mechanism and if anything that reduces liquidity available to actual economy.