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People are scared as hell of inflation and that's why the Fed was created. The "stable prices" thing is an elegant way to say "prevent inflation". Now people ar

People are scared as hell of inflation and that's why the Fed was created. The "stable prices" thing is an elegant way to say "prevent inflation". Now people are really upset that the Fed not only won't allow deflation but it is pretty much encouraging inflation. They see this as a betrayal to the public and the reason why the Fed was created in the first place. There is a misalignment between the Fed inflation preference of 2% and the public inflation preference which is 0% or even -2% Enter crypto: what draws people to crypto is deflation. People love deflation, they gravitate towards crypto because deflation is hard built in protocol and it brings about financial nirvana for the saver: that is being able to increase one's net worth without doing any tangible work, manual or intellectual. That's the value of Crypto, people have lost faith in the Fed. BTC gives people what they want (hard coded deflation) and has an amazing marketing story.

thehappypm 5y ago
Um, public inflation preference is hardly deflationary. Would you like it if your mortgage became harder and harder to pay off every month? If your wages went down over time?
- ObserverNeutral 5y ago
  I don't think retail makes that connection, also when there is a will there is a political way. Maybe deflationary preference with a moratorium on student debt and mortgages. Point being: people want to sit on their couch and enrich their net worth without doing any work
  - deleted 5y ago
    [deleted]
  - seoaeu 5y ago
    > Point being: people want to sit on their couch and enrich their net worth without doing any work If you have more debt than you do cash in your back account, then inflation can enrich your net worth without you doing any work.
    - ObserverNeutral 5y ago
      If you are not the US government or a AAA+ company such as Microsoft ...then your creditors will get inflation back from you in the form of interest and then some. Never in a million years the regular borrower would be able to increase their net worth with inflation. Regular borrowers can't borrow anywhere near the consensus projected inflation rate.
      - kybernetikos 5y ago
        Regular borrowers income increase somewhat in line with inflation. Houses bought on interest payments that seemed difficult to manage become easy to manage within a few years. I know a large number of people at the moment who have ended up with an impressive property portfolio without even trying all that hard. They bought early in their career, and the value of the property they bought inflated, their income inflated, and their debt didn't keep pace.
        ObserverNeutral 5y ago
        Again. Back to the narrative and communication issue. People ascribe credit for their rising income and increasing salary to their performance on the job....some more humble ascribe it their employer and their boss. That's who takes credit for it. For sure not inflation and for sure it's not the Fed with their 2% target. Inflation is in all the wrong places with regards to the narrative, for one reason or another only the negatives are outlined and the population somehow is very scared of it. Deflation is in the opposite spot. When deflation happens the culprit in the narrative is the economic recession/depression and the wealthy who played roulette in the stock market etc. The negatives of deflation are only known to academics, wheras the positives are known to everybody (e.g. currency strenght of the USD when you go on a trip to Mexico) It is clear to me that this might offend the economics professor, but that's the reality of it. That's the reality we all have to trade on. Narrative is very important.
    - kybernetikos 5y ago
      And this is in fact the case for almost everyone who has a mortgage (i.e. most of the middle class).
  - kybernetikos 5y ago
    > people want to sit on their couch and enrich their net worth without doing any work That doesn't scale. It's not possible for society to offer this to a majority of people in any short term scenario, because if 'enrich their net worth' means anything beyond a number going up, there needs to be increased production of goods and services that they consume. That means that you can only get this if you win the risk lottery. Longer term, if we get massive levels of automated production, the number of opportunities for this kind of life can increase, but deflation is much more likely to diminish the production capacity of a society than increase it. In an economy in deflation the pressure is for wages to go down - either by reducing the number of jobs, or by reducing what they pay. It's hard to imagine a society accepting such a situation happily.
    - ObserverNeutral 5y ago
      Nobody is thinking about what you just said before buying bitcoin. And you know it. And actually they might not be as ignorant as you might think. You have no control over Macroeconomics so you might as well play the game in order to have "your number going up" and let the Macroeconomic chips fall where they may. Regardless of where the macroeconomics chips fall...you'd be better off with a higher number than a lower number.
      - kybernetikos 5y ago
        > you'd be better off with a higher number than a lower number. A small proportion of a big pie can be much more filling than a large proportion of a small pie. But yes, whether running a whole economy on a deflationary currency is a good idea is an entirely separate question to whether some use of bitcoin makes sense. Having said that, and speaking for at least myself, the (in my opinion) misguided narrative around deflation and 'store of value' that is common in bitcoin core world makes me much more interested in bitcoin cash and ethereum commmunities where niche economic philosophies I don't agree with are not as common as in bitcoin core. There are so many interesting things we can do with smart contracts and a widespread settlement system that doesn't have gatekeepers. Creating value is much more interesting than storing it.
nradov 5y ago
Most people live paycheck to paycheck and aren't saving a significant percentage of their income. So I don't believe that they're scared of inflation, or see deflation as nirvana.
dkrich 5y ago
Why would people want deflation? Sure your dollars will be worth more but you’ll be out of work and the economy will be in shambles. People seem to hate the fed and its ability to print dollars until a liquidity crisis comes around. I will admit this fed is highly questionable for a few years now as it seems its primary motivation is boosting stock prices. If you’ve followed Powell from the beginning it’s hard to come up with another motivation he’s operating under. I think he won’t hint at a hike and then will leave his position before a hike is imminent as he doesn’t want to be blamed for a crash. It’s very concerning that the fed has basically become an extension of the White House and seemingly politically motivated.
- ObserverNeutral 5y ago
  > Why would people want deflation? Sure your dollars will be worth more but you’ll be out of work and the economy will be in shambles The narrative is important on this. When a recession happens, the message which is brought to the population is : "Recession is bad, we must end the recession" When inflation hits the message is (not that it's necessary given that people feel the diminishing purchasing power) : "Inflation is bad, we must end inflation". Deflation has never been painted as the enemy by institutions, and I think rightfully so, because the population would struggle to see it as an enemy due to the fact that it's desirable at the individual level. So crypto is the perfect enviornment for this. People make up their mind to buy crypto within close doors without thinking about macroeconomics...they only think about their dollars being worth more > It’s very concerning that the fed has basically become an extension of the White House and seemingly politically motivated. It has always been. Everybody wants to be popular and keep their job.
  - seoaeu 5y ago
    > because the population would struggle to see it [deflation] as an enemy due to the fact that it's desirable at the individual level. Deflation can be ruinous at the individual level. If you are in debt (like many of the poorest members of our society) then significant deflation means that you'll have to pay back your creditors substantially more than you borrowed, and many won't be able to. Consider, would you take a mortgage denominated in Bitcoin? Of course not! If its price continued to go up (i.e. it continued to be deflationary) then you wouldn't be able to pay back the loan and would face foreclosure.
abecedarius 5y ago
> People are scared as hell of inflation and that's why the Fed was created. The rationale for the Federal Reserve Act was not inflation but financial crises, more or less like the 2008 one. Inflation in the U.S. before the Fed was rare and episodic, e.g. "not worth a continental". (BTW I think it's far from clear the Act made us better off wrt financial crises either, considering the 1930s for a start.)
- ObserverNeutral 5y ago
  then why the Fed was assigned the job of keeping prices stable? All the other parameters in the economy such as the stock market, real estate, interest rate are free to fluctuate but the Fed can use its powers to keep prices stable and people employed. It's clearly a political entity
  - abecedarius 5y ago
    Calling inflating prices "stable" is doubletalk, whether or not the policy is a good idea. The inflation-targeting policy framework dates from 1980ish, influenced by Friedman's monetarism and "rational expectations", as I understand it (poorly). In the decades before that, after the Depression and WW2, the official policy was more Keynesian in flavor. But that was not the rationale to create the Fed, again. More recently since 2008 and especially 2020, it's looking like a new regime again, and I wouldn't count on the next decade looking like the past several.

thehappypm 5y ago

Um, public inflation preference is hardly deflationary. Would you like it if your mortgage became harder and harder to pay off every month? If your wages went down over time?

ObserverNeutral 5y ago
I don't think retail makes that connection, also when there is a will there is a political way. Maybe deflationary preference with a moratorium on student debt and mortgages. Point being: people want to sit on their couch and enrich their net worth without doing any work
- deleted 5y ago
  [deleted]
- seoaeu 5y ago
  > Point being: people want to sit on their couch and enrich their net worth without doing any work If you have more debt than you do cash in your back account, then inflation can enrich your net worth without you doing any work.
  - ObserverNeutral 5y ago
    If you are not the US government or a AAA+ company such as Microsoft ...then your creditors will get inflation back from you in the form of interest and then some. Never in a million years the regular borrower would be able to increase their net worth with inflation. Regular borrowers can't borrow anywhere near the consensus projected inflation rate.
    - kybernetikos 5y ago
      Regular borrowers income increase somewhat in line with inflation. Houses bought on interest payments that seemed difficult to manage become easy to manage within a few years. I know a large number of people at the moment who have ended up with an impressive property portfolio without even trying all that hard. They bought early in their career, and the value of the property they bought inflated, their income inflated, and their debt didn't keep pace.
      - ObserverNeutral 5y ago
        Again. Back to the narrative and communication issue. People ascribe credit for their rising income and increasing salary to their performance on the job....some more humble ascribe it their employer and their boss. That's who takes credit for it. For sure not inflation and for sure it's not the Fed with their 2% target. Inflation is in all the wrong places with regards to the narrative, for one reason or another only the negatives are outlined and the population somehow is very scared of it. Deflation is in the opposite spot. When deflation happens the culprit in the narrative is the economic recession/depression and the wealthy who played roulette in the stock market etc. The negatives of deflation are only known to academics, wheras the positives are known to everybody (e.g. currency strenght of the USD when you go on a trip to Mexico) It is clear to me that this might offend the economics professor, but that's the reality of it. That's the reality we all have to trade on. Narrative is very important.
  - kybernetikos 5y ago
    And this is in fact the case for almost everyone who has a mortgage (i.e. most of the middle class).
- kybernetikos 5y ago
  > people want to sit on their couch and enrich their net worth without doing any work That doesn't scale. It's not possible for society to offer this to a majority of people in any short term scenario, because if 'enrich their net worth' means anything beyond a number going up, there needs to be increased production of goods and services that they consume. That means that you can only get this if you win the risk lottery. Longer term, if we get massive levels of automated production, the number of opportunities for this kind of life can increase, but deflation is much more likely to diminish the production capacity of a society than increase it. In an economy in deflation the pressure is for wages to go down - either by reducing the number of jobs, or by reducing what they pay. It's hard to imagine a society accepting such a situation happily.
  - ObserverNeutral 5y ago
    Nobody is thinking about what you just said before buying bitcoin. And you know it. And actually they might not be as ignorant as you might think. You have no control over Macroeconomics so you might as well play the game in order to have "your number going up" and let the Macroeconomic chips fall where they may. Regardless of where the macroeconomics chips fall...you'd be better off with a higher number than a lower number.
    - kybernetikos 5y ago
      > you'd be better off with a higher number than a lower number. A small proportion of a big pie can be much more filling than a large proportion of a small pie. But yes, whether running a whole economy on a deflationary currency is a good idea is an entirely separate question to whether some use of bitcoin makes sense. Having said that, and speaking for at least myself, the (in my opinion) misguided narrative around deflation and 'store of value' that is common in bitcoin core world makes me much more interested in bitcoin cash and ethereum commmunities where niche economic philosophies I don't agree with are not as common as in bitcoin core. There are so many interesting things we can do with smart contracts and a widespread settlement system that doesn't have gatekeepers. Creating value is much more interesting than storing it.

nradov 5y ago

Most people live paycheck to paycheck and aren't saving a significant percentage of their income. So I don't believe that they're scared of inflation, or see deflation as nirvana.

dkrich 5y ago

Why would people want deflation? Sure your dollars will be worth more but you’ll be out of work and the economy will be in shambles. People seem to hate the fed and its ability to print dollars until a liquidity crisis comes around. I will admit this fed is highly questionable for a few years now as it seems its primary motivation is boosting stock prices. If you’ve followed Powell from the beginning it’s hard to come up with another motivation he’s operating under. I think he won’t hint at a hike and then will leave his position before a hike is imminent as he doesn’t want to be blamed for a crash. It’s very concerning that the fed has basically become an extension of the White House and seemingly politically motivated.

ObserverNeutral 5y ago
> Why would people want deflation? Sure your dollars will be worth more but you’ll be out of work and the economy will be in shambles The narrative is important on this. When a recession happens, the message which is brought to the population is : "Recession is bad, we must end the recession" When inflation hits the message is (not that it's necessary given that people feel the diminishing purchasing power) : "Inflation is bad, we must end inflation". Deflation has never been painted as the enemy by institutions, and I think rightfully so, because the population would struggle to see it as an enemy due to the fact that it's desirable at the individual level. So crypto is the perfect enviornment for this. People make up their mind to buy crypto within close doors without thinking about macroeconomics...they only think about their dollars being worth more > It’s very concerning that the fed has basically become an extension of the White House and seemingly politically motivated. It has always been. Everybody wants to be popular and keep their job.
- seoaeu 5y ago
  > because the population would struggle to see it [deflation] as an enemy due to the fact that it's desirable at the individual level. Deflation can be ruinous at the individual level. If you are in debt (like many of the poorest members of our society) then significant deflation means that you'll have to pay back your creditors substantially more than you borrowed, and many won't be able to. Consider, would you take a mortgage denominated in Bitcoin? Of course not! If its price continued to go up (i.e. it continued to be deflationary) then you wouldn't be able to pay back the loan and would face foreclosure.

abecedarius 5y ago

> People are scared as hell of inflation and that's why the Fed was created. The rationale for the Federal Reserve Act was not inflation but financial crises, more or less like the 2008 one. Inflation in the U.S. before the Fed was rare and episodic, e.g. "not worth a continental". (BTW I think it's far from clear the Act made us better off wrt financial crises either, considering the 1930s for a start.)

ObserverNeutral 5y ago
then why the Fed was assigned the job of keeping prices stable? All the other parameters in the economy such as the stock market, real estate, interest rate are free to fluctuate but the Fed can use its powers to keep prices stable and people employed. It's clearly a political entity
- abecedarius 5y ago
  Calling inflating prices "stable" is doubletalk, whether or not the policy is a good idea. The inflation-targeting policy framework dates from 1980ish, influenced by Friedman's monetarism and "rational expectations", as I understand it (poorly). In the decades before that, after the Depression and WW2, the official policy was more Keynesian in flavor. But that was not the rationale to create the Fed, again. More recently since 2008 and especially 2020, it's looking like a new regime again, and I wouldn't count on the next decade looking like the past several.