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The other big problem is that debt loads don't drop along with prices - which effectively makes them rise. Falling prices (which lead to falling wages) + stable

The other big problem is that debt loads don't drop along with prices - which effectively makes them rise. Falling prices (which lead to falling wages) + stable debt loads make it far harder for debtors to pay off their debts, which puts even further drag on the economy.

stevenwagner 15y ago
I would not short gold or Apple either, the risk would be huge! So are you agreeing that bitcoins will become worth more then? So I shouldnt take a bitcoin loan out, I should take a dollar loan out and buy bitcoins with it. Or you are saying bitcoins are bad so they will go down in value ... and I should... whaaat?
- msbarnett 15y ago
  He's saying that the characteristics of bitcoins make it a lousy currency (people have little incentive to spend or loan it). Whether or not it's an asset worthy of investing in is a separate question. (I'd argue that it isn't, but that's a separate issue from the characteristics that make it a bad currency).
  - jarek 15y ago
    As an investment, it's like gold but without the intrinsic value part and the "historically used as an investment for the past couple of millenia" part.
    - caf 15y ago
      The intrinsic value of gold is quite a bit less than its market value, though - it's very hard to separate that from the "historically desired" aspect. If you want intrinsic value, you're probably better off investing in good quality rifles.
      - jarek 15y ago
        Well, of course. But bitcoin doesn't have even that. Though I would suggest that you would have to time your entry into the quality rifle investment market well to avoid getting hit by a speculative markup caused by people's expectations of their future intrinsic value.
    - guelo 15y ago
      The intrinsic value of bitcoin is as an uncensorable way to transfer money, for example to donate to Wikileaks when Visa and Paypal won't let you. It becomes more valuable the more governments try to stop transactions. This is why I'm bullish on it.
      - jarek 15y ago
        Oh, uncensorable? You mean as long as the government permits both parties to be connected to the internet. When they block either of you, it's about as good as a hundred dollar bill.
  - Amincd 15y ago
    But this contradicts itself. If it makes it a lousy currency, then people wouldn't expect its value to rise, and hence would have an incentive to spend it, hence it would be a good currency and its value would rise.
euroclydon 15y ago
Wow, for all I've read about Austrian Economics, I've never heard that simple yet devastating argument.
- TruthElixirX 15y ago
  Austrians don't advocate for a deflationary currency, they advocate for competing currencies. Rothbard, one of the "pillars" of Austrian Economics, even stated that The Great Depression was due to deflation not inflation. Lots of people that scratch the surface of Austrian Economics immediately start shouting the ills of inflation and such. Most "hardcore" Austrians I know would like a currency that's supply grew with economic growth. Economy grows by x measure then so does the currency, to keep it stable.
  - euroclydon 15y ago
    Thanks. I knew this was wrong as soon as it left my keyboard. I guess the problem we're having is that the Fed's mandate is to keep unemployment low, not to expand the currency as the population expands. I really don't understand how a currency supply is supposed to track growth, when one of the means of controlling currency expansion, the discount rate, can actually stimulate growth sometimes, right?
- michaeldhopkins 15y ago
  Just to be clear, it's an argument against fiat currency as deflationary and inflationary shocks occur in those systems. The effects of deflation and inflation over time are countered with market-set interest rates -- higher savings and loan rates in an inflationary period and low-to-negative rates in a deflationary period. Yes, in a deflationary economy a (for example) -5.00% interest rate might be fair and would happen were it allowed.
  - caf 15y ago
    Why would you ever lend money at a negative interest rate? You can always get 0.00% with virtually no risk just by socking the money away in a secure location. This is the heart of the problem with deflation (and deflationary currencies like bitcoin) - there's a 0.00% floor on the time cost of money.
iradik 15y ago
Yes, instead of taking on debt people would be incentivized to save money before spending it. With inflation you get the reverse effect: people are incentivized to take on debt to spend.

stevenwagner 15y ago

I would not short gold or Apple either, the risk would be huge! So are you agreeing that bitcoins will become worth more then? So I shouldnt take a bitcoin loan out, I should take a dollar loan out and buy bitcoins with it. Or you are saying bitcoins are bad so they will go down in value ... and I should... whaaat?

msbarnett 15y ago
He's saying that the characteristics of bitcoins make it a lousy currency (people have little incentive to spend or loan it). Whether or not it's an asset worthy of investing in is a separate question. (I'd argue that it isn't, but that's a separate issue from the characteristics that make it a bad currency).
- jarek 15y ago
  As an investment, it's like gold but without the intrinsic value part and the "historically used as an investment for the past couple of millenia" part.
  - caf 15y ago
    The intrinsic value of gold is quite a bit less than its market value, though - it's very hard to separate that from the "historically desired" aspect. If you want intrinsic value, you're probably better off investing in good quality rifles.
    - jarek 15y ago
      Well, of course. But bitcoin doesn't have even that. Though I would suggest that you would have to time your entry into the quality rifle investment market well to avoid getting hit by a speculative markup caused by people's expectations of their future intrinsic value.
  - guelo 15y ago
    The intrinsic value of bitcoin is as an uncensorable way to transfer money, for example to donate to Wikileaks when Visa and Paypal won't let you. It becomes more valuable the more governments try to stop transactions. This is why I'm bullish on it.
    - jarek 15y ago
      Oh, uncensorable? You mean as long as the government permits both parties to be connected to the internet. When they block either of you, it's about as good as a hundred dollar bill.
- Amincd 15y ago
  But this contradicts itself. If it makes it a lousy currency, then people wouldn't expect its value to rise, and hence would have an incentive to spend it, hence it would be a good currency and its value would rise.

euroclydon 15y ago

Wow, for all I've read about Austrian Economics, I've never heard that simple yet devastating argument.

TruthElixirX 15y ago
Austrians don't advocate for a deflationary currency, they advocate for competing currencies. Rothbard, one of the "pillars" of Austrian Economics, even stated that The Great Depression was due to deflation not inflation. Lots of people that scratch the surface of Austrian Economics immediately start shouting the ills of inflation and such. Most "hardcore" Austrians I know would like a currency that's supply grew with economic growth. Economy grows by x measure then so does the currency, to keep it stable.
- euroclydon 15y ago
  Thanks. I knew this was wrong as soon as it left my keyboard. I guess the problem we're having is that the Fed's mandate is to keep unemployment low, not to expand the currency as the population expands. I really don't understand how a currency supply is supposed to track growth, when one of the means of controlling currency expansion, the discount rate, can actually stimulate growth sometimes, right?
michaeldhopkins 15y ago
Just to be clear, it's an argument against fiat currency as deflationary and inflationary shocks occur in those systems. The effects of deflation and inflation over time are countered with market-set interest rates -- higher savings and loan rates in an inflationary period and low-to-negative rates in a deflationary period. Yes, in a deflationary economy a (for example) -5.00% interest rate might be fair and would happen were it allowed.
- caf 15y ago
  Why would you ever lend money at a negative interest rate? You can always get 0.00% with virtually no risk just by socking the money away in a secure location. This is the heart of the problem with deflation (and deflationary currencies like bitcoin) - there's a 0.00% floor on the time cost of money.

iradik 15y ago

Yes, instead of taking on debt people would be incentivized to save money before spending it. With inflation you get the reverse effect: people are incentivized to take on debt to spend.