I don't think you're quite grasping how minor the deflation is on a short term basis. Take a look at the graphs on this page. This is nothing to base your personal income on. Most companies I have worked for net about 10%, which is orders of magnitude higher than the 'return' on deflation. Consider that the entire industrial revolution occurred under a gold standard - clearly people had financial incentive to invest.
With deflation we end up with small increases in spending power. This makes the poor slightly richer, not poorer.
Those scandals had nothing to do with any particular party or president, and, in fact, the scandals started and the bulk occurred while Clinton was in office.
Yahoo! ran at a loss for many years and offered investors no option for dividends. The market cap was higher than the GDP of New Zealand. Would you rather have stock in Yahoo! or New Zealand?
Future returns on initial investment in BitCoin are dependent upon the increase in value of BitCoins. If the market feels there is value in BitCoins, then they will invest, and payoff only comes from selling BitCons. In a Ponzi scheme, payoff comes from taking the investment of others and keeping it for yourself. You do not understand Ponzi schemes because this bares no relation. There is not one analysis from an economist that I've found claiming that BitCoin is a Ponzi scheme, and plenty of economists do not accept or even like BitCoin.
Thus when making the decision to fund the bakery, the profit margins and viability of the business will be even more carefully evaluated to make sure the investment is sound. This is helps to reduce malinvestment, the opposite of what inflation does.
I think by 'rampant capitalism' you mean corporatism or chony-capitalism. The corporate manipulation of the government. Those activities are made more profitable under an inflationary fiat currency.
You won't even consider that Shadow Stats and the many economists who study the changes in measurement of the various government reported statistics may be correct? That the entity who stands to lose the most from reported high inflation, which is also the entity that calculates the inflation rate, might not be operating with complete integrity? Shadow States and others are just fearmongers looking to make a quick buck? This seems dismissive, especially considering how accurately these people have been at predicting economic events, and how the others have completely failed to predict current economic events.
Did you look at the rates on money market accounts? They barely qualify as an 'investment'.
You have it exactly right. Purchases and investments are considered differently. Another example could be an iPhone. Apple comes out with a new model and people camp out at stores to buy one. Those people are not concerned with the future price of iPhones. Even more extreme is video games. In this category I actually fall into the category of waiting for prices to fall. I know that in less than 12 months the game will go from $60 to $30, so 50% deflation in 12 months, and I'll enjoy the game just the same, yet there are still so many people out there buying new games that even that part of the market that chooses to save 50% is still not enough for those making investment decisions to hold off on producing the game. I think their decisions on making games would be the same with deflation or inflation. And these things all work in reverse. A capital good purchased under deflation will also increase in value, which can actually offset considerations for loss when profitability is less secure.
That sounds like freedom: If you want capital to start a business, you're going to have to go out and beg for it. You cannot create the capital for yourself. If you understand the concept of loan payments getting less, why wouldn't you understand the concept of wealth getting less and less? Besides, any lender worth his salt will factor in the cost of money.
Yes, look at all the baby-boomers getting rich quick - I think they're trying to create something to retire on, but they're not very good at investing. And look at all the risk-averse putting money into... CDs? Are you serious?Money markets? Perhaps you should check out that Shadow States page I suggested. Look at why its creator even does what he does. TIPS are a joke. I think the risk-averse will not like any of these options, and that is why gold and silver continue to rise in value.
I'll go ahead and restate what I stated 2 posts up. People do not factor into their purchase of a loaf of bread what its future value will be, thus the entire supply chain will be built around this behavior. Lots of people have invested on gold standards. For example: the industrial revolution.
More correctly, the government manipulates the calculation of inflation to show it maintains steady inflation, but I'll start by assuming the inflation number is correct.
Inflation steals wealth. If I work for a year at age 25 and save from the year $5000, that money will depreciate in value. At a 2% rate when I retire 40 years later, the $5000 will only be worth about 55% of its original value. (Personally, I consider this to be immoral because it is the theft of my wealth, but I'll also leave such moral arguments out.) Because I know that my wealth is being siphoned off, I feel that I must protect it by investing. However, for the sake of this discussion, my specialty is being an electrician, not an investor. I wouldn't know a good investment if it hit me on the head, but I know that I must invest or I lose my wealth. Most likely I make a poor investment decision. I buy tech stocks in 1999. I buy real estate in 2007. I have two mutual funds that always lose money. Even a 'small' amount of inflation will strongly encourage these types of malinvestment.
However, with deflation the opposite is true. I know that my wealth will increase with time. This makes it much harder to convince me to part with my money, thus discouraging malinvestment. Additionally, I may actually save up enough money on my own to create my own investment into something I know well. Perhaps a good or service in the trade I have participated in my entire life. This would make the investment much more likely to succeed and thus be a much more efficient use of capital.
As for the actual inflation rate, you might want to take a look at Shadow States.
This is a theory that doesn't play out. The U.S. had deflation the entire time it was on a gold standard, which ended in 1913. The amount of deflation is minor in the short term, and really nothing to write home about in the long term. The simple explanation is to consider the purchases you make in your life. When you go to purchase bread, do you think that perhaps you should wait a while before buying bread because the price may fall? No, that's silly - you get the bread because you want it now. This is how the entire supply chain behind that loaf of bread will behave. You are not going to go to the store and find the shelf empty because an entire supply chain is waiting for deflation to bring down the price of some capital good.
It is impossible to maintain steady pricing. We are going to end up with deflation or inflation. Deflation is generally preferable.
I mentioned Zimbabwe because of their hyperinflation.
Do you have any recollection of what happened to the U.S. dollar in the 70s? Do you know why Carter was a one-term president? 14% inflation. Inflation is purely a monetary phenomenon. I can tell you I know quite a few small business owners and none of them have invested in gold because of their libertarian beliefs (they aren't libertarians - they don't even think they're libertarians) or out of following others. They are doing it because they are deathly afraid of losing their wealth from the inflation of the money supply. Gold is not currently in a speculative bubble. Assuming that the Federal Government is able to end its deficit spending and stop increasing the money supply, gold will come down in price. However, what goes down does not necessarily come back up.
It actually is not a fiat currency. A fiat currency is one that can be ordered to be changed, usually by a sovereign (that's actually what fiat means). In the case of BitCoin, there is no sovereign. Just a predictable computer code, and thus it would not suffer the traditional issues of inflation that fiat currencies suffer.
As I understand it, there is an amount of anonymity to BitCoin. Those desiring to know who you are would have to figure out that you own your hash. If you trade transact through Tor, this is all but impossible. However, if you're dealing in physical goods, an investigation of their distribution would reveal your location.
It would be quite a long time before people should consider accepting these for labor, unless you know you will get paid quickly and then immediately convert them to some other form of wealth.
My current opinion is that BitCoins, at best, may become a default standard for payment over the Internet. 'Cyber-credits', if you want.
I have found that the Austrians have a hard time accepting the idea of a digital currency. The core of their argument seems to be that digital currencies are not made up of something that had value before being a medium of exchange, such as gold and silver. When I counter to them that BitCoin is made up of code and people pay money for things like video games, they argue that the video game would have to be the thing valued, not the computer code. How do you deal with these kinds of objections?
Slashdot Mirror
I don't think you're quite grasping how minor the deflation is on a short term basis. Take a look at the graphs on this page. This is nothing to base your personal income on. Most companies I have worked for net about 10%, which is orders of magnitude higher than the 'return' on deflation. Consider that the entire industrial revolution occurred under a gold standard - clearly people had financial incentive to invest.
With deflation we end up with small increases in spending power. This makes the poor slightly richer, not poorer.
Those scandals had nothing to do with any particular party or president, and, in fact, the scandals started and the bulk occurred while Clinton was in office.
Yahoo! ran at a loss for many years and offered investors no option for dividends. The market cap was higher than the GDP of New Zealand. Would you rather have stock in Yahoo! or New Zealand?
Future returns on initial investment in BitCoin are dependent upon the increase in value of BitCoins. If the market feels there is value in BitCoins, then they will invest, and payoff only comes from selling BitCons. In a Ponzi scheme, payoff comes from taking the investment of others and keeping it for yourself. You do not understand Ponzi schemes because this bares no relation. There is not one analysis from an economist that I've found claiming that BitCoin is a Ponzi scheme, and plenty of economists do not accept or even like BitCoin.
Thus when making the decision to fund the bakery, the profit margins and viability of the business will be even more carefully evaluated to make sure the investment is sound. This is helps to reduce malinvestment, the opposite of what inflation does.
I think by 'rampant capitalism' you mean corporatism or chony-capitalism. The corporate manipulation of the government. Those activities are made more profitable under an inflationary fiat currency.
Just because something increases in value does not mean it is part of a Ponzi scheme. Note my example of Yahoo! stock in the 90s.
You won't even consider that Shadow Stats and the many economists who study the changes in measurement of the various government reported statistics may be correct? That the entity who stands to lose the most from reported high inflation, which is also the entity that calculates the inflation rate, might not be operating with complete integrity? Shadow States and others are just fearmongers looking to make a quick buck? This seems dismissive, especially considering how accurately these people have been at predicting economic events, and how the others have completely failed to predict current economic events.
Did you look at the rates on money market accounts? They barely qualify as an 'investment'.
I invest in expanding my business.
You have it exactly right. Purchases and investments are considered differently. Another example could be an iPhone. Apple comes out with a new model and people camp out at stores to buy one. Those people are not concerned with the future price of iPhones. Even more extreme is video games. In this category I actually fall into the category of waiting for prices to fall. I know that in less than 12 months the game will go from $60 to $30, so 50% deflation in 12 months, and I'll enjoy the game just the same, yet there are still so many people out there buying new games that even that part of the market that chooses to save 50% is still not enough for those making investment decisions to hold off on producing the game. I think their decisions on making games would be the same with deflation or inflation. And these things all work in reverse. A capital good purchased under deflation will also increase in value, which can actually offset considerations for loss when profitability is less secure.
That sounds like freedom: If you want capital to start a business, you're going to have to go out and beg for it. You cannot create the capital for yourself. If you understand the concept of loan payments getting less, why wouldn't you understand the concept of wealth getting less and less? Besides, any lender worth his salt will factor in the cost of money.
Yes, look at all the baby-boomers getting rich quick - I think they're trying to create something to retire on, but they're not very good at investing. And look at all the risk-averse putting money into... CDs? Are you serious? Money markets? Perhaps you should check out that Shadow States page I suggested. Look at why its creator even does what he does. TIPS are a joke. I think the risk-averse will not like any of these options, and that is why gold and silver continue to rise in value.
I'll go ahead and restate what I stated 2 posts up. People do not factor into their purchase of a loaf of bread what its future value will be, thus the entire supply chain will be built around this behavior. Lots of people have invested on gold standards. For example: the industrial revolution.
More correctly, the government manipulates the calculation of inflation to show it maintains steady inflation, but I'll start by assuming the inflation number is correct.
Inflation steals wealth. If I work for a year at age 25 and save from the year $5000, that money will depreciate in value. At a 2% rate when I retire 40 years later, the $5000 will only be worth about 55% of its original value. (Personally, I consider this to be immoral because it is the theft of my wealth, but I'll also leave such moral arguments out.) Because I know that my wealth is being siphoned off, I feel that I must protect it by investing. However, for the sake of this discussion, my specialty is being an electrician, not an investor. I wouldn't know a good investment if it hit me on the head, but I know that I must invest or I lose my wealth. Most likely I make a poor investment decision. I buy tech stocks in 1999. I buy real estate in 2007. I have two mutual funds that always lose money. Even a 'small' amount of inflation will strongly encourage these types of malinvestment.
However, with deflation the opposite is true. I know that my wealth will increase with time. This makes it much harder to convince me to part with my money, thus discouraging malinvestment. Additionally, I may actually save up enough money on my own to create my own investment into something I know well. Perhaps a good or service in the trade I have participated in my entire life. This would make the investment much more likely to succeed and thus be a much more efficient use of capital.
As for the actual inflation rate, you might want to take a look at Shadow States.
But that isn't a problem inherent in the BitCoin system itself.
Because there isn't much gold (its quantity, for all intents and purposes, can't be changed) and it has been a medium of exchange for eons.
The speculative part of most bubbles comes later in the cycle. I suggest reading Crash Proof.
This is a theory that doesn't play out. The U.S. had deflation the entire time it was on a gold standard, which ended in 1913. The amount of deflation is minor in the short term, and really nothing to write home about in the long term. The simple explanation is to consider the purchases you make in your life. When you go to purchase bread, do you think that perhaps you should wait a while before buying bread because the price may fall? No, that's silly - you get the bread because you want it now. This is how the entire supply chain behind that loaf of bread will behave. You are not going to go to the store and find the shelf empty because an entire supply chain is waiting for deflation to bring down the price of some capital good.
It is impossible to maintain steady pricing. We are going to end up with deflation or inflation. Deflation is generally preferable.
I mentioned Zimbabwe because of their hyperinflation.
Do you have any recollection of what happened to the U.S. dollar in the 70s? Do you know why Carter was a one-term president? 14% inflation. Inflation is purely a monetary phenomenon. I can tell you I know quite a few small business owners and none of them have invested in gold because of their libertarian beliefs (they aren't libertarians - they don't even think they're libertarians) or out of following others. They are doing it because they are deathly afraid of losing their wealth from the inflation of the money supply. Gold is not currently in a speculative bubble. Assuming that the Federal Government is able to end its deficit spending and stop increasing the money supply, gold will come down in price. However, what goes down does not necessarily come back up.
It actually is not a fiat currency. A fiat currency is one that can be ordered to be changed, usually by a sovereign (that's actually what fiat means). In the case of BitCoin, there is no sovereign. Just a predictable computer code, and thus it would not suffer the traditional issues of inflation that fiat currencies suffer.
As I understand it, there is an amount of anonymity to BitCoin. Those desiring to know who you are would have to figure out that you own your hash. If you trade transact through Tor, this is all but impossible. However, if you're dealing in physical goods, an investigation of their distribution would reveal your location.
It would be quite a long time before people should consider accepting these for labor, unless you know you will get paid quickly and then immediately convert them to some other form of wealth.
My current opinion is that BitCoins, at best, may become a default standard for payment over the Internet. 'Cyber-credits', if you want.
The decimal can be moved.
Why would you desire to prevent deflation?
How do you ensure your exchange isn't being used for illicit purposes (to avoid being shut down by government authorities)?
What, you mean like other p2p technologies, such as BitTorrent?
Can it!
Nope. Most currencies are backed by a government and not just some guy on the internet.
What, like the government of Zimbabwe? Do you understand why gold and silver are skyrocketing in USD?
I suggest reading up on Ponzi schemes and then backing your claim up with facts. You'll find that BitCoin is not a Ponzi scheme.
I have found that the Austrians have a hard time accepting the idea of a digital currency. The core of their argument seems to be that digital currencies are not made up of something that had value before being a medium of exchange, such as gold and silver. When I counter to them that BitCoin is made up of code and people pay money for things like video games, they argue that the video game would have to be the thing valued, not the computer code. How do you deal with these kinds of objections?
I believe that's called being an entrepreneur. Which people actually made money on Yahoo! stock in the 90s?
According to this person, nothing in BitCoin is encrypted.
Yes, justice is impartial.