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I'm personally buying bitcoin to hedge against possible inflation in the next year. The COVID relief packages are just the government printing more money, makin

I'm personally buying bitcoin to hedge against possible inflation in the next year. The COVID relief packages are just the government printing more money, making existing money worth less. Once the vaccines are showing their effect in stopping the pandemic there will be a lot of pent up spending people are going to want to do which will lead to higher prices. Bitcoin seems like a good inflation hedge due to its fixed amount.

_Microft 6y ago
This is exactly what I do not understand. How would a system with a fixed amount of coins work in real life, i.e. in a case like we currently have, when you just need to get money into people's hands so that they can pay their rent and do not starve?
- nipponese 6y ago
  People might ask the same question about gold, but after hundreds of years, it's still here as a scarce asset with speculative value.
  - arcticbull 6y ago
    And gold was awful money which is literally why we stopped using it as money. Trying to bring back a digital gold based money is just making new crap digital money.
    - insert_coin 6y ago
      The current fiat system has be around for about 50 years. Don't you think it is a little premature to compare it with 5000 years of monetary history and declare it a winner? In any case, the fact that fiat money has not been able to prevent the business cycle from creating devastating crises would seem to imply otherwise.
      - arcticbull 6y ago
        The World Wide Web has only been around 30 years don’t you think it’s a little premature to compare it with 5000 years of carrier pigeons and horse drawn letter delivery? I for one remain unconvinced. Ooh my pigeon just arrived! I wonder what news she brings from the Capital! ;)
        insert_coin 6y ago
        > don’t you think it’s a little premature to compare it with 5000 years of carrier pigeons and horse drawn letter delivery? No. It is almost as if the two situations are not related.
        arcticbull 6y ago
        I’m just saying the length of time it’s been around isn’t the sole determining factor of whether it’s demonstrated value, or of whether the system it replaced is better or worse. You have to evaluate that on its own merits, and yeah I do think 50 years is long enough to begin to draw some meaningful conclusions. Otherwise "50 years is too soon" seems like some arbitrary conclusion you've reached without a real basis?
        aeternum 6y ago
        Fiat money isn't new, in general the transition between hard money (gold/metal), paper money, and fiat is cyclical. The transition from fiat to hard isn't always pleasant. Some nice graphs from Ray Dalio that show it plotted out for various currencies throughout history if you scroll down: https://www.principles.com/the-changing-world-order/#chapter3 https://www.principles.com/the-changing-world-order/#chapter...
    - apta 6y ago
      People stopped using gold because of greed and power. They introduced a usurious system in order to collect wealth to a small group of people, resulting in the mess we're in today. Gold, silver, and commodities are the superior solution.
- insert_coin 6y ago
  The answer is of course that the question does not apply, because printing "money" and giving it to people is not the one and only way to ensure people do not starve (don't get me wrong it is a way, but is probably the most detrimental in the long run because of all the unintended side effects, some of which we have already been witnessing) If the goal is to not starve, the government could give, you know, actual edible food to people and not pieces of paper. (I am not suggesting this, it is just another possibility) But to your more broader question, the fixed amount of bitcoins is only a problem if you intend to keep the system working as it has, but bitcoin advocates favor a new way (or the old gold-backed way) to look at the economy on which savings is the bedrock of it and not debt like we currently "enjoy".
- krupan 6y ago
  That money has to come from somewhere, no matter which system you are using. Even if the government just prints it, there's still a cost.
- ur-whale 6y ago
  There's a fixed amount, but it can be divide to very tiny parts (1e-8 of a BTC). So, there's a fixed amount, but in practice, there quite a lot of it (2.1e15 if I'm not too drunk).
  - arcticbull 6y ago
    That means nothing if the wealth distribution is somehow worse than that of US dollars, which it is, and there’s no mechanism to create new dollars to give to folks to even it out.
    - ur-whale 6y ago
      Non-sequitur olympics, here I come.
      - arcticbull 6y ago
        Nope you’re not understanding my point and that could easily be my bad. That’s part of what inflation does. It allows the monetary system to react to shocks and changes like population growth and global pandemics. Deflation without creation of monetary units benefits the existing concentration of wealth as you and your children get to fight each other for scraps. These pieces are all connected. This system will lead to the existing moneyed class of coiners becoming more and more wealthy as a function of economic productivity forever.
        ChainOfFools 6y ago
        >This system will lead to the existing moneyed class of coiners becoming more and more wealthy as a function of economic productivity forever. This, along with depriving The Great State-an of a means to operate an effective revenue collection system, has been the real objective since the beginning. Decentralization has never been anything other than a mantra, a fig leaf to be casually dropped when no longer useful or credible. "Hyperbitcoinization" means never having to say you're sorry for selling a fraud to 'the masses'
- tobmlt 6y ago
  Well, there’s nothing stopping subdivision of a currency by any means available. Bad money drives out good as well, so in practice, people cash in bitcoin and pay with dollars in order to pay small fraction of what 1 bitcoin is worth. In theory, a “sub coin” could handle this but I guess it hasn’t been desired enough for anyone to bother specializing in it. All I am saying is theoretically there is no issue. Oh and others mention subdividing bitcoin directly so there is that.
- shawnz 6y ago
  With fiat currencies, money is basically an IOU from the central bank. So it is easy for them to give loans by "printing money", since a loan from the central bank is just as good as cash. You could still layer a system like that on top of Bitcoin. However, you might have trouble getting people to accept your bitcoin IOUs as equivalent to real coins. That said, why would you want that? Why not just use fiat currencies where they are appropriate, and leave Bitcoin for the use cases in which it's appropriate? It doesn't need to replace the whole economy to be useful as a technology.
aphextron 6y ago
>The COVID relief packages are just the government printing more money, making existing money worth less. The thing is, it only causes inflation when that money circulates. But the Fed is just pumping it directly into the stock market. The result is sky high valuations and asset prices, but very little change in the actual day-to-day economy's monetary supply. This is why inflation is still under 2%. And sure, people could sell out and take their cash to invest elsewhere, but with 0% interest rates there's literally nowhere else to put it.
- latchkey 6y ago
  The Fed is pumping money into the stock market and the businesses are buying back their stocks with it in order to pump up the markets even more. This was the downfall of Hertz already and it will be interesting in 2021 with the banks... https://www.investors.com/news/stress-tests-bank-stocks-dividends-buybacks-2021/ https://www.investors.com/news/stress-tests-bank-stocks-divi...
- krupan 6y ago
  The simplest way to think about this is in terms of supply and demand. The supply of dollars is going up, so the price will go down, unless the demand for dollars also goes up. If people are selling stock, taking out loans, doing other things in order to demand and obtain dollars, then we won't see inflation. Yet.
  - rualca 6y ago
    > If people are selling stock, taking out loans, doing other things in order to demand and obtain dollars, then we won't see inflation. Yet. Isn't it plausible that the dollar supply isn't actually reaching consumer markets, and consequently inflation stagnated because a drop in purchasing power leads to a drop in aggregate demand?
    - krupan 6y ago
      This comment expounds on what I said pretty well: https://news.ycombinator.com/item?id=25576634 https://news.ycombinator.com/item?id=25576634
nirushiv 6y ago
Can you explain this to me a little more? If spending is up, wouldn’t the stock market outperform Bitcoin anyway? If we have rapid inflation, wouldn’t money go into something tangible and of value before something intangible and perhaps of value?
- shawnz 6y ago
  Inflation hedges work because their value is (theoretically) unchanging over the long term and so by comparison it seems like they appreciate in value compared to fiat currencies which experience inflation. But really, inflation hedges don't grow in value during times of high inflation, they just don't lose as much value as the fiat currencies do. That is how they protect against inflation.
  - nirushiv 6y ago
    Thanks both for explaining. I appreciate it!
- deleted 6y ago
  [deleted]
- insert_coin 6y ago
  > If spending is up, wouldn’t the stock market outperform Bitcoin anyway? The dollar is way down. It doesn't matter if the DOW hits 1 million if the dollar is worthless.
drchopchop 6y ago
>Bitcoin seems like a good inflation hedge due to its fixed amount. ... until Tether explodes, and then it's musical chairs to figure out who the bagholders will be. https://www.courtlistener.com/docket/16298999/in-re-tether-and-bitfinex-crypto-asset-litigation/?page=2 https://www.courtlistener.com/docket/16298999/in-re-tether-a...
- rattlesnakedave 6y ago
  Like clockwork, the "muh tether" FUD continues on HN. If you think tether is the only reason cryptoassets are increasing in value, you are simply not paying attention.
  - ur-whale 6y ago
    While I would very much like to agree with you, I still haven't read a convincing debunking of the "tether is used to manipulate Bitcoin's price" argument. The facts, AFAIK are: - Bitfinex (or rather some entity controlled by the same folks who own Bitfinex) can emit as much Tether (USDT) as they like. - They claim to have, in a reserve bank account somewhere, one dollar for each USDT ever emitted (which - in itself - is problematic because of counterparty risk). - They have never - so far - provided a proper third party audit of said reserve bank accounts. - Even if they do *actually* have one USD stashed for each USDT in circulation, it's highly unlikely they're just letting it sit there, it's likely invested, therefore risk, therefore the equation 1USD==1USDT is iffy at best. - emitted USDT can easily be used to buy BTC and pump the price up I'd be very happy to be proven wrong on any of the points above.
    - aeternum 6y ago
      I generally agree that they should allow a proper 3rd party audit and disclose their USD asset management strategy. The biggest counter-argument is just the orders of magnitude of the two. Tether's market cap is 20b whereas bitcoin's is 350b. While that's large enough to cause a temporary shock and can be used for short-term manipulation, it likely not enough to cause long-term damage.
  - 6y ago
H8crilA 6y ago
Why not TIPS, gold, real estate or basic material stocks? Bitcoin seems to be the most insane choice for inflation hedging. It may be a good trade, but not for the reasons you've listed. (not to mention that so far there has been absolutely no broad inflation almost everywhere around the world, though this can of course change)
- onlyrealcuzzo 6y ago
  I love that BTC is supposed to be correlated with inflation - when if you take one second to look at the price chart - it obviously has no correlation with inflation whatsoever.
  - rualca 6y ago
    > I love that BTC is supposed to be correlated with inflation Is it really? BTC is renowned for being systematically and thoroughly manipulated. It makes no sense to expect any correlation that is based on the assumptions of a free market.
  - H8crilA 6y ago
    Well, to be honest there hasn't been any serious inflation in any developed country since ~2009, since Bitcoin was created. Gold is short term pretty much uncorrelated with anything, but long term keeps up with CPI very well. Even on extremely long time scales, several centuries.
- ed25519FUUU 6y ago
  A house is a pretty good hedge against inflation. You can sleep in it during the night and grow veggies outside it during the day. The only downside is you can sell a small portion of your house.
  - latchkey 6y ago
    How is that any different than getting an equity loan?
arcticbull 6y ago
You can literally buy anything to hedge against inflation. Anything. If you don’t own physical dollars the inflation thereof doesn’t affect you. This is ECON101. Your only job is to pick an asset you believe in. Then there’s the whole thing of you way overstating the impact of printing money and of stimulus on inflation. Inflation remains on track for a perfect bulls eye 2% per annum. The velocity of money is a huge factor you aren’t considering. It’s dropping and these are measures to counteract its drop. A lack of printing and stimulus would be deflationary and that would be way, way worse than inflation.
- krupan 6y ago
  Literally anything!? Like baseball cards and beanie babies? I am set! In all serious, why is a little deflation way way worse than inflation? To put it another way, if inflation is good and deflation is bad, why do I need to buy deflationary commodities as a hedge against it?
  - arcticbull 6y ago
    Yea once you have beanie babies inflation doesn’t matter. What matters is it’s performance as an asset class relative to your other options. [edit] The point of inflation is manifold but to answer your question specifically inflation is meant in part as an incentive to invest. It’s function in a capitalist society is to encourage group evaluation of equities and help pick winners and trim losers. It sets the benchmark rate of performance for your investments. Money is only useful when it moves. If it’s not collateralizing loans, and changing hands, economic activity slows and stops. This economic activity is jobs people do day to day. Deflation slows activity because if your money is worth more tomorrow than today it encourages inaction. In its worst incarnation you get a deflationary spiral where prices fall to stimulate buying but deflation continues anyways, and so on. We can talk about whether that’s a good thing or not but it’s very much not what the coiners are advocating for.
    - krupan 6y ago
      Very helpful. Thank you? ¯\_(ツ)_/¯ Oh, you added more after the beanie baby topic . Yes, I understand that inflation is a way to motivate certain behaviors. Some of us resent the coercion. I still don’t understand the extreme fear of deflation. Like, if the value of dollars increases over time, nobody will buy anything and the entire economy will collapse? I just don’t see that happening. People can’t eat dollars, or sit and stare at them in the evenings when they are bored.
paulpauper 6y ago
In spite of trillions of dollars printed for Covid aid, and presumably much more to come, inflation as measured by CPI has not budged, for several reasons: There is insatiable demand for treasury bonds and dollars, and as well dollar reserve currency status means that the govt can find buyers for its bonds without yields rising, hence tempering inflation. A strong dollar makes imports cheaper, hence also lowering inflation. Studies show only 1/3 of the stimulus is spent on consumer goods. The rest is saved, invested, or used to pay down debts. Such deleveraging is deflationary. The amount of money is still relatively small and infrequent compared to the vast size of the US economy and total consumer spending and other activity. Even if inflation was to rise, you would not need to hedge, because everything would be shifted higher, such as stock prices, home prices, wages, etc. Because the US dollar is implicitly understood as the global and standard benchmark/unit of wealth (the Forbes 400 list is in dollars, not euros), it means Americans do not lose wealth if price levels rise or if the US dollar falls. Bitcoin and precious metals could be an effective hedge if you live in a country that does not have reverse currency status and you need to stave off loss of wealth relative to the US dollar due to the local currency falling against the dollar.

_Microft 6y ago

This is exactly what I do not understand. How would a system with a fixed amount of coins work in real life, i.e. in a case like we currently have, when you just need to get money into people's hands so that they can pay their rent and do not starve?

nipponese 6y ago
People might ask the same question about gold, but after hundreds of years, it's still here as a scarce asset with speculative value.
- arcticbull 6y ago
  And gold was awful money which is literally why we stopped using it as money. Trying to bring back a digital gold based money is just making new crap digital money.
  - insert_coin 6y ago
    The current fiat system has be around for about 50 years. Don't you think it is a little premature to compare it with 5000 years of monetary history and declare it a winner? In any case, the fact that fiat money has not been able to prevent the business cycle from creating devastating crises would seem to imply otherwise.
    - arcticbull 6y ago
      The World Wide Web has only been around 30 years don’t you think it’s a little premature to compare it with 5000 years of carrier pigeons and horse drawn letter delivery? I for one remain unconvinced. Ooh my pigeon just arrived! I wonder what news she brings from the Capital! ;)
      - insert_coin 6y ago
        > don’t you think it’s a little premature to compare it with 5000 years of carrier pigeons and horse drawn letter delivery? No. It is almost as if the two situations are not related.
        arcticbull 6y ago
        I’m just saying the length of time it’s been around isn’t the sole determining factor of whether it’s demonstrated value, or of whether the system it replaced is better or worse. You have to evaluate that on its own merits, and yeah I do think 50 years is long enough to begin to draw some meaningful conclusions. Otherwise "50 years is too soon" seems like some arbitrary conclusion you've reached without a real basis?
        aeternum 6y ago
        Fiat money isn't new, in general the transition between hard money (gold/metal), paper money, and fiat is cyclical. The transition from fiat to hard isn't always pleasant. Some nice graphs from Ray Dalio that show it plotted out for various currencies throughout history if you scroll down: https://www.principles.com/the-changing-world-order/#chapter3 https://www.principles.com/the-changing-world-order/#chapter...
  - apta 6y ago
    People stopped using gold because of greed and power. They introduced a usurious system in order to collect wealth to a small group of people, resulting in the mess we're in today. Gold, silver, and commodities are the superior solution.
insert_coin 6y ago
The answer is of course that the question does not apply, because printing "money" and giving it to people is not the one and only way to ensure people do not starve (don't get me wrong it is a way, but is probably the most detrimental in the long run because of all the unintended side effects, some of which we have already been witnessing) If the goal is to not starve, the government could give, you know, actual edible food to people and not pieces of paper. (I am not suggesting this, it is just another possibility) But to your more broader question, the fixed amount of bitcoins is only a problem if you intend to keep the system working as it has, but bitcoin advocates favor a new way (or the old gold-backed way) to look at the economy on which savings is the bedrock of it and not debt like we currently "enjoy".
krupan 6y ago
That money has to come from somewhere, no matter which system you are using. Even if the government just prints it, there's still a cost.
ur-whale 6y ago
There's a fixed amount, but it can be divide to very tiny parts (1e-8 of a BTC). So, there's a fixed amount, but in practice, there quite a lot of it (2.1e15 if I'm not too drunk).
- arcticbull 6y ago
  That means nothing if the wealth distribution is somehow worse than that of US dollars, which it is, and there’s no mechanism to create new dollars to give to folks to even it out.
  - ur-whale 6y ago
    Non-sequitur olympics, here I come.
    - arcticbull 6y ago
      Nope you’re not understanding my point and that could easily be my bad. That’s part of what inflation does. It allows the monetary system to react to shocks and changes like population growth and global pandemics. Deflation without creation of monetary units benefits the existing concentration of wealth as you and your children get to fight each other for scraps. These pieces are all connected. This system will lead to the existing moneyed class of coiners becoming more and more wealthy as a function of economic productivity forever.
      - ChainOfFools 6y ago
        >This system will lead to the existing moneyed class of coiners becoming more and more wealthy as a function of economic productivity forever. This, along with depriving The Great State-an of a means to operate an effective revenue collection system, has been the real objective since the beginning. Decentralization has never been anything other than a mantra, a fig leaf to be casually dropped when no longer useful or credible. "Hyperbitcoinization" means never having to say you're sorry for selling a fraud to 'the masses'
tobmlt 6y ago
Well, there’s nothing stopping subdivision of a currency by any means available. Bad money drives out good as well, so in practice, people cash in bitcoin and pay with dollars in order to pay small fraction of what 1 bitcoin is worth. In theory, a “sub coin” could handle this but I guess it hasn’t been desired enough for anyone to bother specializing in it. All I am saying is theoretically there is no issue. Oh and others mention subdividing bitcoin directly so there is that.
shawnz 6y ago
With fiat currencies, money is basically an IOU from the central bank. So it is easy for them to give loans by "printing money", since a loan from the central bank is just as good as cash. You could still layer a system like that on top of Bitcoin. However, you might have trouble getting people to accept your bitcoin IOUs as equivalent to real coins. That said, why would you want that? Why not just use fiat currencies where they are appropriate, and leave Bitcoin for the use cases in which it's appropriate? It doesn't need to replace the whole economy to be useful as a technology.

aphextron 6y ago

>The COVID relief packages are just the government printing more money, making existing money worth less. The thing is, it only causes inflation when that money circulates. But the Fed is just pumping it directly into the stock market. The result is sky high valuations and asset prices, but very little change in the actual day-to-day economy's monetary supply. This is why inflation is still under 2%. And sure, people could sell out and take their cash to invest elsewhere, but with 0% interest rates there's literally nowhere else to put it.

latchkey 6y ago
The Fed is pumping money into the stock market and the businesses are buying back their stocks with it in order to pump up the markets even more. This was the downfall of Hertz already and it will be interesting in 2021 with the banks... https://www.investors.com/news/stress-tests-bank-stocks-dividends-buybacks-2021/ https://www.investors.com/news/stress-tests-bank-stocks-divi...
krupan 6y ago
The simplest way to think about this is in terms of supply and demand. The supply of dollars is going up, so the price will go down, unless the demand for dollars also goes up. If people are selling stock, taking out loans, doing other things in order to demand and obtain dollars, then we won't see inflation. Yet.
- rualca 6y ago
  > If people are selling stock, taking out loans, doing other things in order to demand and obtain dollars, then we won't see inflation. Yet. Isn't it plausible that the dollar supply isn't actually reaching consumer markets, and consequently inflation stagnated because a drop in purchasing power leads to a drop in aggregate demand?
  - krupan 6y ago
    This comment expounds on what I said pretty well: https://news.ycombinator.com/item?id=25576634 https://news.ycombinator.com/item?id=25576634

nirushiv 6y ago

Can you explain this to me a little more? If spending is up, wouldn’t the stock market outperform Bitcoin anyway? If we have rapid inflation, wouldn’t money go into something tangible and of value before something intangible and perhaps of value?

shawnz 6y ago
Inflation hedges work because their value is (theoretically) unchanging over the long term and so by comparison it seems like they appreciate in value compared to fiat currencies which experience inflation. But really, inflation hedges don't grow in value during times of high inflation, they just don't lose as much value as the fiat currencies do. That is how they protect against inflation.
- nirushiv 6y ago
  Thanks both for explaining. I appreciate it!
deleted 6y ago
[deleted]
insert_coin 6y ago
> If spending is up, wouldn’t the stock market outperform Bitcoin anyway? The dollar is way down. It doesn't matter if the DOW hits 1 million if the dollar is worthless.

drchopchop 6y ago

>Bitcoin seems like a good inflation hedge due to its fixed amount. ... until Tether explodes, and then it's musical chairs to figure out who the bagholders will be. https://www.courtlistener.com/docket/16298999/in-re-tether-and-bitfinex-crypto-asset-litigation/?page=2 https://www.courtlistener.com/docket/16298999/in-re-tether-a...

rattlesnakedave 6y ago
Like clockwork, the "muh tether" FUD continues on HN. If you think tether is the only reason cryptoassets are increasing in value, you are simply not paying attention.
- ur-whale 6y ago
  While I would very much like to agree with you, I still haven't read a convincing debunking of the "tether is used to manipulate Bitcoin's price" argument. The facts, AFAIK are: - Bitfinex (or rather some entity controlled by the same folks who own Bitfinex) can emit as much Tether (USDT) as they like. - They claim to have, in a reserve bank account somewhere, one dollar for each USDT ever emitted (which - in itself - is problematic because of counterparty risk). - They have never - so far - provided a proper third party audit of said reserve bank accounts. - Even if they do *actually* have one USD stashed for each USDT in circulation, it's highly unlikely they're just letting it sit there, it's likely invested, therefore risk, therefore the equation 1USD==1USDT is iffy at best. - emitted USDT can easily be used to buy BTC and pump the price up I'd be very happy to be proven wrong on any of the points above.
  - aeternum 6y ago
    I generally agree that they should allow a proper 3rd party audit and disclose their USD asset management strategy. The biggest counter-argument is just the orders of magnitude of the two. Tether's market cap is 20b whereas bitcoin's is 350b. While that's large enough to cause a temporary shock and can be used for short-term manipulation, it likely not enough to cause long-term damage.
- 6y ago

H8crilA 6y ago

Why not TIPS, gold, real estate or basic material stocks? Bitcoin seems to be the most insane choice for inflation hedging. It may be a good trade, but not for the reasons you've listed. (not to mention that so far there has been absolutely no broad inflation almost everywhere around the world, though this can of course change)

onlyrealcuzzo 6y ago
I love that BTC is supposed to be correlated with inflation - when if you take one second to look at the price chart - it obviously has no correlation with inflation whatsoever.
- rualca 6y ago
  > I love that BTC is supposed to be correlated with inflation Is it really? BTC is renowned for being systematically and thoroughly manipulated. It makes no sense to expect any correlation that is based on the assumptions of a free market.
- H8crilA 6y ago
  Well, to be honest there hasn't been any serious inflation in any developed country since ~2009, since Bitcoin was created. Gold is short term pretty much uncorrelated with anything, but long term keeps up with CPI very well. Even on extremely long time scales, several centuries.
ed25519FUUU 6y ago
A house is a pretty good hedge against inflation. You can sleep in it during the night and grow veggies outside it during the day. The only downside is you can sell a small portion of your house.
- latchkey 6y ago
  How is that any different than getting an equity loan?

arcticbull 6y ago

You can literally buy anything to hedge against inflation. Anything. If you don’t own physical dollars the inflation thereof doesn’t affect you. This is ECON101. Your only job is to pick an asset you believe in. Then there’s the whole thing of you way overstating the impact of printing money and of stimulus on inflation. Inflation remains on track for a perfect bulls eye 2% per annum. The velocity of money is a huge factor you aren’t considering. It’s dropping and these are measures to counteract its drop. A lack of printing and stimulus would be deflationary and that would be way, way worse than inflation.

krupan 6y ago
Literally anything!? Like baseball cards and beanie babies? I am set! In all serious, why is a little deflation way way worse than inflation? To put it another way, if inflation is good and deflation is bad, why do I need to buy deflationary commodities as a hedge against it?
- arcticbull 6y ago
  Yea once you have beanie babies inflation doesn’t matter. What matters is it’s performance as an asset class relative to your other options. [edit] The point of inflation is manifold but to answer your question specifically inflation is meant in part as an incentive to invest. It’s function in a capitalist society is to encourage group evaluation of equities and help pick winners and trim losers. It sets the benchmark rate of performance for your investments. Money is only useful when it moves. If it’s not collateralizing loans, and changing hands, economic activity slows and stops. This economic activity is jobs people do day to day. Deflation slows activity because if your money is worth more tomorrow than today it encourages inaction. In its worst incarnation you get a deflationary spiral where prices fall to stimulate buying but deflation continues anyways, and so on. We can talk about whether that’s a good thing or not but it’s very much not what the coiners are advocating for.
  - krupan 6y ago
    Very helpful. Thank you? ¯\_(ツ)_/¯ Oh, you added more after the beanie baby topic . Yes, I understand that inflation is a way to motivate certain behaviors. Some of us resent the coercion. I still don’t understand the extreme fear of deflation. Like, if the value of dollars increases over time, nobody will buy anything and the entire economy will collapse? I just don’t see that happening. People can’t eat dollars, or sit and stare at them in the evenings when they are bored.

paulpauper 6y ago

In spite of trillions of dollars printed for Covid aid, and presumably much more to come, inflation as measured by CPI has not budged, for several reasons: There is insatiable demand for treasury bonds and dollars, and as well dollar reserve currency status means that the govt can find buyers for its bonds without yields rising, hence tempering inflation. A strong dollar makes imports cheaper, hence also lowering inflation. Studies show only 1/3 of the stimulus is spent on consumer goods. The rest is saved, invested, or used to pay down debts. Such deleveraging is deflationary. The amount of money is still relatively small and infrequent compared to the vast size of the US economy and total consumer spending and other activity. Even if inflation was to rise, you would not need to hedge, because everything would be shifted higher, such as stock prices, home prices, wages, etc. Because the US dollar is implicitly understood as the global and standard benchmark/unit of wealth (the Forbes 400 list is in dollars, not euros), it means Americans do not lose wealth if price levels rise or if the US dollar falls. Bitcoin and precious metals could be an effective hedge if you live in a country that does not have reverse currency status and you need to stave off loss of wealth relative to the US dollar due to the local currency falling against the dollar.