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This is not sound analysis, as it revolves around the mistaken notion that a currency is inflationary or deflationary depending on its supply. This is not the c
by lottin 6y ago
This is not sound analysis, as it revolves around the mistaken notion that a currency is inflationary or deflationary depending on its supply. This is not the case, there are other variables involved. For a cryptocurrency to be inflationary or deflationary, or have a predictable price at all, it would require a governing body that is capable of adjusting its supply as needed. Since they don't have that, because the whole point of cryptocurrencies is to do away with central banks due to a strange paranoia, cryptocurrencies are neither inflationary or deflationary, but simply price unstable.
- anm89 6y agoYou are stating this like it's a fact and a known quantity but the reality is that it isn't. Many countries who manage their money supply have wildly unstable currencies. Turkey for example. On the other hand many economists belive Nobel Prize winner Milton Friedman's assertion that "Inflation is always and everywhere a monetary phenomenon" (more economists disagree with this probably, my point being that these are not settled matters) And we have absolutely zero long term evidence of how currencies with pre determined supplies behave. So, sure, state your case, you might be right, but don't make it out to be like this is some law of physics.
- carlob 6y agoNot OP, but I think you are misreading their point. They didn't say that having a governing body is a sufficient condition for having a stable currency, they said it's necessary. It might not be a settled question how monetary policy affects inflation, but cryptocurrencies effectively have no monetary policy apart from a ramp decided when they are created. That doesn't take into account lost wallet keys or number of people using it and mining it...
- eruleman 6y agoEthereum is pioneering a new monetary policy with EIP 1559 (which is going live with Berlin fork this summer). Under EIP 1559, each block will burn ETH — the amount of ETH burned increases as blocks fill up. The ETH burned can offset & exceed the ETH block issuance. Over time, if ETH block space is full, the amount of ETH will decrease.
- proto-n 6y agoWhich is, if I understand correctly, a kind of balancing feedback loop. People are spending -> make it deflationary. People are hoarding -> make it inflationary. It will be really interesting to see if this has any stabilizing effect in the (very) long term.
- 1helloworld1 6y agoGame theoretically, you want to be the hoarder. Let others spend and you reap the rewards of a deflationary asset. In effect, people will still try to hoard as much as possible, and only spend when absolutely necessary.
- proto-n 6y agoThat's true as long as there are hoarders and spenders as well. As soon as there are too many hoarders, inflation comes back, and there's personal incentive for everyone to spend. There is no equilibrium at either everyone being a spender or everyone being a hoarder, thus the self-balancing nature.
- skzv 6y ago> like this is some law of physics. And I don't think it can be. Economics is ultimately the study of people's behaviour, and that is subject to irrationality, emotions, culture, and times.
- imtringued 6y ago>Many countries who manage their money supply have wildly unstable currencies. Turkey for example. This is true, Erdogan decided to take control over the money supply, which is generally the job of the central bank which is an independent branch of the government. Countries with independent central banks usually have stable currencies. >On the other hand many economists belive Nobel Prize winner Milton Friedman's assertion that "Inflation is always and everywhere a monetary phenomenon" (more economists disagree with this probably, my point being that these are not settled matters) What Turkey needs is reforms and financial aid for the agriculture sector not control over the money supply because "inflations" aren't caused by interest rates, they are caused by shortages in the relevant sector. If there is enough food for everyone, then food inflation will go away and it could go away despite the money printing.
- anm89 6y agoTurkeys monetary issues go back way further than the example you are citing.
- mam3 6y agoI am confused about taking ANYTHING from your comment.. are exactly saying "no on agrees on anything about curencies" ?
- Alphabet861 6y agoThis comment is incredibly misleading. Inflation definition: "3.(economics) A decline in the value of money. 4. (economics) An increase in the quantity of money, leading to a devaluation of existing money." Source: https://en.wiktionary.org/wiki/inflation#English https://en.wiktionary.org/wiki/inflation#English This comment implies price instability taking USD as a reference. Who cares what is the USD value of BTC? Once all coins have been mined 1 BTC will always represent the same fraction of the total supply of BTC, i.e.: 1 / 21,000,000. This is not true for any of the fiat currencies. If we take gold as a reference then USD lost 95%+ of its purchasing power over the last century. Source (one of so many): https://www.officialdata.org/us/inflation/1900?amount=100 https://www.officialdata.org/us/inflation/1900?amount=100 As for central bank paranoia, opening a history book should help (keyword: uncontrolled inflation periods + Germany || Hungary || Yugoslavia || Greece || France || Venezuela || Iran || Turkey and I am sure I miss plenty I am not aware of). There's a good reason why the EU has removed this power from its member states to give it to a central bank uncontrolled by the political power. If one does not want to look at history then simply looking at FY2020 and how much USD currency have been debased should help: https://fred.stlouisfed.org/series/BOGMBASE/ https://fred.stlouisfed.org/series/BOGMBASE/ Make no mistake, large corporations with billions of cash on hands start to understand that if not invested, that money is worth less and less year after year and at an unprecedented pace.
- lottin 6y agoSorry, inflation is an increase in the price level in the economy. You may argue that such an increase in the price level is caused by an increase in the quantity of money, but evidence shows that increases in the quantity of money (which, by the way, you seem to confuse with the monetary base) fail to explain changes in the price level. [1] The relationship is far more nuanced and complex. [1] https://ibb.co/LCnfMFf https://ibb.co/LCnfMFf
- CTDOCodebases 6y ago“.. the whole point of crypto currencies is to do away with central banks due to a strange paranoia..” I agree there are a lot of people involved with Bitcoin that have trust issues (justified or unjustified... you be the judge) but this statement is a generalisation. Currently cryptocurrencies are the only way for me to be the custodian of my money in a digital form. If I leave money in the bank while I save up for a deposit for a home loan at the moment I get basically no interest and the bank gets to loan around 17x that money to others to buy residential property. Meanwhile the cost of housing is increasing because those who have sufficient funds in their account are better off parking that money in the property market (with or without an accompanying loan) Can you see why people want out of this perverse system?
- lottin 6y agoNo, I don't see it. I think if you think banks are to blame for high housing costs, you're not thinking very hard. Housing costs rise in some areas, because a lot of people wants to move in those areas. Building new houses takes time, which means in the short term prices will rise inevitably. Same thing applies to interest rates. Low interest rates are simply signalling that there is an oversupply of savings in the market. If you still want to save, fine, but don't expect to earn much interest. This is not some conspiracy of evil bankers, just normal market forces at play.
- CTDOCodebases 6y ago“Housing costs rise in some areas, because a lot of people wants to move in those areas.” Oh silly me. Here I was thinking that it had something to do with the cheap debt available (courtesy of government, banks and my savings for a home loan deposit), negative gearing and lax foreign investment laws that incentivise individuals to purchase residential properties for investment purposes. Like I said. I just want to be the custodian of my money in a secure digital form so that it cannot be used against me. Why is that so unacceptable?
- lottin 6y agoPutting your life savings in a high-risk, non-producing asset is not very smart, but it's certainly nobody's business but yours.
- patricius 6y agoWell, not exactly. For instance, if you see gold as money, it is inflationary because of its increasing supply, which is not decided by a governing body, but by the supply created by gold mining. Bitcoin adjusts its supply automatically and without interference from a governing body. It is deflationary since it's supply is capped and because it's purchasing power increases continually.
- lottin 6y agoNo, this monetary theory is disproven by facts. The gold standard was not inflationary. And bitcoin is not deflationary. Look at the data, it's not that hard. The data says the price level is not determined by the money supply. So, back to the blackboard.
- patricius 6y agoInflation is not price level. It is increase in the money supply. An increasing price level is the result of inflation. By definition gold is inflationary since its supply continues to increase.
- lottin 6y agoNext time you attempt to discuss economics with somebody I suggest you educate yourself a little bit beforehand, to at least get a grasp of the basic concepts. The Core project has published an introductory textbook [1] that you may find useful for this purpose (although any book will do, really). In particular, chapter 13 deals with inflation among other topics [2]: "Inflation is an increase in the general price level in the economy, usually measured over a year." [1] https://www.core-econ.org/the-economy/index.html https://www.core-econ.org/the-economy/index.html [2] https://www.core-econ.org/the-economy/book/text/13.html#138-measuring-the-economy-inflation https://www.core-econ.org/the-economy/book/text/13.html#138-...
- patricius 6y agoBefore suggesting somebody read an introduction to economics to learn about inflation, please try to take a deeper look into what inflation really is: > Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check. But people today use the term `inflation' to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise. [1] [1]: http://mises.org/efandi/ch20.asp http://mises.org/efandi/ch20.asp
- mypalmike 6y agoEconomies tend to grow. That is, more stuff (goods and services) is available to be traded as populations grow and productivity increases. More stuff + same money supply = lower price per stuff. The math is unavoidable. Governing bodies don't play a role in that.
- eloff 6y ago> to do away with central banks due to a strange paranoia It's not a strange paranoia. Do you know how many currencies go through hyperinflation and die? The list is much longer than currencies that have lasted 200 years.