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Inflation is not essential. If people hide their money under mattresses, all that means is that they aren't competing to buy the available goods. Inputs for o

Inflation is not essential. If people hide their money under mattresses, all that means is that they aren't competing to buy the available goods. Inputs for other ventures are cheaper. If the government weren't trying to re-inflate the asset bubble with cheap money, ventures that make more sense would be flourishing instead. Resources are not infinite. When someone accepts a piece of paper and just holds on to it instead of immediately consuming what he could buy, the resources are available for other things. And when there are more people deferring their consumption, its cheaper to borrow money/resources and cheaper to grow new industries. Countries don't become rich and powerful by consuming everything as soon as they get it. They do it by growing their industries.

chad_oliver 13y ago
You have a very good point, and I hadn't considered that aspect. However, if people defer their consumption, surely they'll also have less need to spend money, and thus less incentive to perform economically productive activities in order to earn money to spend? I'm sure people will be quite happy in the short term, but over longer periods (decades) there will be much less effort (not necessarily money) invested in economic activity.
- sliverstorm 13y ago
  Yup, that's basically the problem with deflation. It stagnates the economy, and it is self-reinforcing. Called a deflationary spiral.
  - seanmcdirmid 13y ago
    Deflation is the easiest way to turn a recession into a depression.
atmosx 13y ago
I also believe that a currency must be inflationary for all the good known reasons but every time I think of BTC being inflationary I realize that Satoshi didn't really had a choice. Why on earth you would buy an unknown inflationary currency? I mean, it would NEVER take off, except for illegal markets where use the privacy offered by a crypto-currency. But look where we are now? Silk Road gone (well almost) but BTC unaffected and sky-rocketed. You would never have attracted that capital if you haven't a deflationary currency. Actually, by all means it's an asset.
- lingben 13y ago
  You've got it wrong. If Satoshi's purpose was to get people to pile in after him/them, it had to be deflationary. Mission accomplished. Bitcoin isn't a run of the mill ponzi scheme, it is a very new take on it. But it is still essentially front-running and hoping and planning that lemmings follow you to push up the price so you can then unload.
seanmcdirmid 13y ago
> If people hide their money under mattresses, all that means is that they aren't competing to buy the available goods. That is called "deflation." They tried it in Japan, it didn't work. > If the government weren't trying to re-inflate the asset bubble with cheap money, ventures that make more sense would be flourishing instead. Inflation and cheap money/asset bubbles are completely orthogonal. If anything, inflation should increase interest rates, not lower them. > Resources are not infinite. When someone accepts a piece of paper and just holds on to it instead of immediately consuming what he could buy, the resources are available for other things. Resources are also for the most part either perishable or they depreciate. At the very least, resources must be expended (warehousing) while unused resources are stored for later use. Ideally, resources are used closed to when they are produced. Otherwise, value is lost in some manner. > And when there are more people deferring their consumption, its cheaper to borrow money/resources and cheaper to grow new industries. Why grow your industry when the consumers have deferred their consumption? Once more people have deferred consumption, the economy and industry will shrink, not grow. > Countries don't become rich and powerful by consuming everything as soon as they get it. They do it by growing their industries. They do it by doing both. I live in a country with high industrial output (aimed at export) but little consumption in comparison (people save too much + high income disparity), its a trap that the Chinese government is desperately trying to get out of. If Chinese don't consume, the gov has little choice but to buy treasuries (as upposed to investing in more unused infrastructure/ghost cities/industrial output), and they are losing money on those t-bills.
- splintercell 13y ago
  > They tried it in Japan, it didn't work. There's a big difference between "trying to make it happen" and "happened despite of them trying to not happen". Deflation/Inflation works fine when governments aren't involved. Point being that if market can predict the inflation and deflation then every contract will account for that. No business will fail because of deflation, because they will purposefully account for the deflation in their economic calculation when they pay the workers and raw materials. In simple words, when government isn't causing deflation, at the start of deflation the wages always falls faster than the prices of consumer goods which always clears the market(which is when the rate of fall of consumer goods prices equals the rate of fall of wages). When government is trying to meddle with the money supply, it disrupts the economic calculation of the market which prevents the market from clearing in time and from real wages to rise up.

chad_oliver 13y ago

You have a very good point, and I hadn't considered that aspect. However, if people defer their consumption, surely they'll also have less need to spend money, and thus less incentive to perform economically productive activities in order to earn money to spend? I'm sure people will be quite happy in the short term, but over longer periods (decades) there will be much less effort (not necessarily money) invested in economic activity.

sliverstorm 13y ago
Yup, that's basically the problem with deflation. It stagnates the economy, and it is self-reinforcing. Called a deflationary spiral.
- seanmcdirmid 13y ago
  Deflation is the easiest way to turn a recession into a depression.

atmosx 13y ago

I also believe that a currency must be inflationary for all the good known reasons but every time I think of BTC being inflationary I realize that Satoshi didn't really had a choice. Why on earth you would buy an unknown inflationary currency? I mean, it would NEVER take off, except for illegal markets where use the privacy offered by a crypto-currency. But look where we are now? Silk Road gone (well almost) but BTC unaffected and sky-rocketed. You would never have attracted that capital if you haven't a deflationary currency. Actually, by all means it's an asset.

lingben 13y ago
You've got it wrong. If Satoshi's purpose was to get people to pile in after him/them, it had to be deflationary. Mission accomplished. Bitcoin isn't a run of the mill ponzi scheme, it is a very new take on it. But it is still essentially front-running and hoping and planning that lemmings follow you to push up the price so you can then unload.

seanmcdirmid 13y ago

> If people hide their money under mattresses, all that means is that they aren't competing to buy the available goods. That is called "deflation." They tried it in Japan, it didn't work. > If the government weren't trying to re-inflate the asset bubble with cheap money, ventures that make more sense would be flourishing instead. Inflation and cheap money/asset bubbles are completely orthogonal. If anything, inflation should increase interest rates, not lower them. > Resources are not infinite. When someone accepts a piece of paper and just holds on to it instead of immediately consuming what he could buy, the resources are available for other things. Resources are also for the most part either perishable or they depreciate. At the very least, resources must be expended (warehousing) while unused resources are stored for later use. Ideally, resources are used closed to when they are produced. Otherwise, value is lost in some manner. > And when there are more people deferring their consumption, its cheaper to borrow money/resources and cheaper to grow new industries. Why grow your industry when the consumers have deferred their consumption? Once more people have deferred consumption, the economy and industry will shrink, not grow. > Countries don't become rich and powerful by consuming everything as soon as they get it. They do it by growing their industries. They do it by doing both. I live in a country with high industrial output (aimed at export) but little consumption in comparison (people save too much + high income disparity), its a trap that the Chinese government is desperately trying to get out of. If Chinese don't consume, the gov has little choice but to buy treasuries (as upposed to investing in more unused infrastructure/ghost cities/industrial output), and they are losing money on those t-bills.

splintercell 13y ago
> They tried it in Japan, it didn't work. There's a big difference between "trying to make it happen" and "happened despite of them trying to not happen". Deflation/Inflation works fine when governments aren't involved. Point being that if market can predict the inflation and deflation then every contract will account for that. No business will fail because of deflation, because they will purposefully account for the deflation in their economic calculation when they pay the workers and raw materials. In simple words, when government isn't causing deflation, at the start of deflation the wages always falls faster than the prices of consumer goods which always clears the market(which is when the rate of fall of consumer goods prices equals the rate of fall of wages). When government is trying to meddle with the money supply, it disrupts the economic calculation of the market which prevents the market from clearing in time and from real wages to rise up.