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You really think Bitcoin will make it as a usable currency? You know deflationary = hold and never spend, right? Not much use as a currency if there's no flow

by brador 13y ago

You really think Bitcoin will make it as a usable currency? You know deflationary = hold and never spend, right? Not much use as a currency if there's no flow or will to exchange for goods.

oleganza 13y ago
Money is valuable for "reservation demand". The more people want to hold it, the more useful it is to everyone. Only this way it can become a currency. You can't have currency without value and can't have value without holding and having many hands to hold. http://blog.oleganza.com/post/66953255676/transactional-currency-and-store-of-value http://blog.oleganza.com/post/66953255676/transactional-curr... http://blog.oleganza.com/post/43378777734/on-circulation-of-money http://blog.oleganza.com/post/43378777734/on-circulation-of-...
gnerd 13y ago
Well for a reserve currency, deflation is positive as a hedge for inflation. China have bought more gold than anyone else in the world for that reason, to mitigate holding foreign reserve currency (which they limited just last month) or debt priced in foreign currency that inflates beyond their control or liking. One would expect this is the role BitCoin would take, just like gold except a lot more convenient to move around. It is a solution to the Triffin Dilemma, which in 2009 the Governor of The Bank of China wrote about. That same year Russia proposed a new international reserve currency backed by precious metals and a currency basket to solve the same problem. In South America there have been proposals for a petro dollar, backed by oil for the same reason. Deflation is good for a reserve currency, in some ways it is fairer than gold because you don't have to rely on the geographical distribution of gold in the ground.
- dragontamer 13y ago
  Massive deflation is terrible for an economy. When the Wii was making record sales in the USA, Nintendo was reporting record losses. Why? Because the Yen to USD exchange hit 80 to 1, and all of a sudden Nintendo was making 20% less revenues on all US sales. Deflation is BAD BAD BAD for companies who work with your currency.
  - oleganza 13y ago
    So Nintendo was losing money why exactly? Because Japan was not printing money as fast as US? Maybe the problem is in printing money at all? Do you see a symmetry of products vs. money? Both are assets that some people need and some other want to give. If one is in deflation, then another is in inflation to another. Why don't you buy MacBook 2 years from now, when it'll cost the same, but will be more awesome? Because you have non-infinite "time preference": you want certain things today vs. tomorrow. Why people want to hold money? Because it gives them ability to spend it anytime on anything - it's most liquid, most desirable commodity. This is big value in having something in your wallet - freedom to make decisions in face of future uncertainty. If you can freely choose between money which loses in value and money which doesn't, which one every person would put their savings in? Then, everyone spends according to his own time preference - amount of desire to enjoy stuff today vs. tomorrow. http://blog.oleganza.com/post/43378777734/on-circulation-of-money http://blog.oleganza.com/post/43378777734/on-circulation-of-... Here's also a thought experiment on deflationary spiral: http://blog.oleganza.com/post/66215430631/deflationary-spiral http://blog.oleganza.com/post/66215430631/deflationary-spira...
    - dragontamer 13y ago
      > So Nintendo was losing money why exactly? Because Japan was not printing money as fast as US? Maybe the problem is in printing money at all? Because Japan's currency deflated, while the US currency inflated. Printing of money is simply a means to control deflation or inflation. All of the "thought experiments" on deflationary spirals ignore the fact that one happened: the Great Depression of 1930s. And back then, the US Monetary system was pegged to the Gold Standard. We fixed the problem by getting off the Gold Standard. It turns out, basing your country's economy on a deflating commodity was not a good idea.
      - gnerd 13y ago
        Did someone propose that BitCoin serve as the peg for a national currency? I must have missed that part. Deflation is bad, we know its bad and when its bad. So should you peg a national currency to a deflationary commodity like BitCoin or gold? No. Can I use gold right now as a means of exchange? Yes. Does it happen all the time in regular life? No, because that would be a pain in the ass but if it were more convenient, it might. Well that is what BitCoin is, its gold but convenient to transfer. Stop thinking of BitCoin as a national currency or a replacement for a national currency. It is a commodity like gold which can serve as a supranational currency or store of value, your national economy can still be inflationary.

by brador 13y ago

You really think Bitcoin will make it as a usable currency? You know deflationary = hold and never spend, right? Not much use as a currency if there's no flow or will to exchange for goods.

oleganza 13y ago

Money is valuable for "reservation demand". The more people want to hold it, the more useful it is to everyone. Only this way it can become a currency. You can't have currency without value and can't have value without holding and having many hands to hold. http://blog.oleganza.com/post/66953255676/transactional-currency-and-store-of-value http://blog.oleganza.com/post/66953255676/transactional-curr... http://blog.oleganza.com/post/43378777734/on-circulation-of-money http://blog.oleganza.com/post/43378777734/on-circulation-of-...

gnerd 13y ago

Well for a reserve currency, deflation is positive as a hedge for inflation. China have bought more gold than anyone else in the world for that reason, to mitigate holding foreign reserve currency (which they limited just last month) or debt priced in foreign currency that inflates beyond their control or liking. One would expect this is the role BitCoin would take, just like gold except a lot more convenient to move around. It is a solution to the Triffin Dilemma, which in 2009 the Governor of The Bank of China wrote about. That same year Russia proposed a new international reserve currency backed by precious metals and a currency basket to solve the same problem. In South America there have been proposals for a petro dollar, backed by oil for the same reason. Deflation is good for a reserve currency, in some ways it is fairer than gold because you don't have to rely on the geographical distribution of gold in the ground.

dragontamer 13y ago
Massive deflation is terrible for an economy. When the Wii was making record sales in the USA, Nintendo was reporting record losses. Why? Because the Yen to USD exchange hit 80 to 1, and all of a sudden Nintendo was making 20% less revenues on all US sales. Deflation is BAD BAD BAD for companies who work with your currency.
- oleganza 13y ago
  So Nintendo was losing money why exactly? Because Japan was not printing money as fast as US? Maybe the problem is in printing money at all? Do you see a symmetry of products vs. money? Both are assets that some people need and some other want to give. If one is in deflation, then another is in inflation to another. Why don't you buy MacBook 2 years from now, when it'll cost the same, but will be more awesome? Because you have non-infinite "time preference": you want certain things today vs. tomorrow. Why people want to hold money? Because it gives them ability to spend it anytime on anything - it's most liquid, most desirable commodity. This is big value in having something in your wallet - freedom to make decisions in face of future uncertainty. If you can freely choose between money which loses in value and money which doesn't, which one every person would put their savings in? Then, everyone spends according to his own time preference - amount of desire to enjoy stuff today vs. tomorrow. http://blog.oleganza.com/post/43378777734/on-circulation-of-money http://blog.oleganza.com/post/43378777734/on-circulation-of-... Here's also a thought experiment on deflationary spiral: http://blog.oleganza.com/post/66215430631/deflationary-spiral http://blog.oleganza.com/post/66215430631/deflationary-spira...
  - dragontamer 13y ago
    > So Nintendo was losing money why exactly? Because Japan was not printing money as fast as US? Maybe the problem is in printing money at all? Because Japan's currency deflated, while the US currency inflated. Printing of money is simply a means to control deflation or inflation. All of the "thought experiments" on deflationary spirals ignore the fact that one happened: the Great Depression of 1930s. And back then, the US Monetary system was pegged to the Gold Standard. We fixed the problem by getting off the Gold Standard. It turns out, basing your country's economy on a deflating commodity was not a good idea.
    - gnerd 13y ago
      Did someone propose that BitCoin serve as the peg for a national currency? I must have missed that part. Deflation is bad, we know its bad and when its bad. So should you peg a national currency to a deflationary commodity like BitCoin or gold? No. Can I use gold right now as a means of exchange? Yes. Does it happen all the time in regular life? No, because that would be a pain in the ass but if it were more convenient, it might. Well that is what BitCoin is, its gold but convenient to transfer. Stop thinking of BitCoin as a national currency or a replacement for a national currency. It is a commodity like gold which can serve as a supranational currency or store of value, your national economy can still be inflationary.