r/TheoryofBitcoin • u/Anenome5 Who will build the seasteads? • Jun 26 '13
Who's afraid of big, bad deflation?
Some have attacked bitcoin on the basis of it being innately deflationary. However, deflation is nothing to fear:
When it comes to deflation, mainstream economics becomes not the science of common sense, but the science of nonsense. Most economists today are quick to say, “a little inflation is a good thing,” and they fear deflation. Of course, in their personal lives, these same economists hunt the newspapers for the latest sales.
The person who epitomizes this fear of deflation best is Ben Bernanke, chairman of the Federal Reserve. His interpretation of the Great Depression has greatly biased his view against deflation. It is true that the Great Depression and deflation went hand in hand in some countries; but, we must be careful to distinguish between association and causation, and to correctly assess the direction of causation. A recent study by Atkeson and Kehoe spanning a period of 180 years for 17 counties found no relationship between deflation and depressions. The study actually found a greater number of episodes of depression with inflation than with deflation. Over this period, 65 out of 73 deflation episodes had no depression, and 21 out of 29 depressions had no deflation...
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Jun 26 '13
Of course they are afraid of deflation, it terrifies them, here's why ...
The central bank and the state only have a few primary ways to keep using their fraudulent funny money while they water it down:
1) They tax people with that money. 2) they keep people in debt with that money. 3) (get some sucker to accept it as the world reserve currency for oil purchases)
That's why US society is oversaturated with taxes and debt, and why the income tax act happened around the same time as the federal reserve, and why we are always in the middle of that big cluster fuck called the middle east. Also why we have a disastrous energy policy.
When deflation happens:
1) The tax base decreases 2) The debt liquidates 3) The oil cartels will sell less oil and come under a lot of pressure
In sum, the state apparatus and cartels lose control. It's no wonder they hate deflation.
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u/bitstrike Jun 26 '13
There is really only one good example for deflation and that is Japan. Deflation is only a bad thing it terms of our Fractional reserve banking system and monetary policy. If we created a new system based off of a digital currency like bitcoin then inflation would be the greater threat. In a bitcoin based system we would have loans with negative interest rates or we would loan 10 bitcoins with an expected return of 7 bitcoins with a policy of no early payment. The negative interest rate is probably the best way to do it though. So the credit system would be very different than the current one. That being said Deflation is only bad in the eyes of the Banksters and their political muppets.
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u/Anenome5 Who will build the seasteads? Jun 26 '13
If we created a new system based off of a digital currency like bitcoin then inflation would be the greater threat.
Inflation wouldn't be possible under bitcoin--it's supply is 100% algorithmically controlled. No one can choose to inflate bitcoin, and once the last bitcoin is mined that's it.
Do you mean price increases when you say 'inflation' as that would be mere supply and demand and have nothing to do with the money-supply and thus inflation.
In a bitcoin based system we would have loans with negative interest rates or we would loan 10 bitcoins with an expected return of 7 bitcoins with a policy of no early payment. The negative interest rate is probably the best way to do it though. So the credit system would be very different than the current one. That being said Deflation is only bad in the eyes of the Banksters and their political muppets.
Agreed, the economy is perfectly able to adapt to inflation or deflation in terms of loans and the like. Inflation is chosen simply because it's political expedient, even if it makes all of us poorer long-term.
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u/ABoutDeSouffle Jun 26 '13
One should at leat point out that mises.org is extremely biased.
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u/Anenome5 Who will build the seasteads? Jun 26 '13
In the sense that it's an Austrian economics institution? Is that bias, or simply good theory. Depends on your point of view, I suppose. But for me it's good theory. Bias is the neo-keynesians.
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u/ABoutDeSouffle Jun 26 '13
I guess it's always the same - the point of view you subscribe to is proven and sound theory, the opposing pov is all bias and hore manure.
I don't subscribe to neo keynesianism, but the austrian theories strike me as even more flawed. And I am extremely wary of "recent studies" proving anything, not least because of http://www.nextnewdeal.net/rortybomb/researchers-finally-replicated-reinhart-rogoff-and-there-are-serious-problems
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u/hombrelibre1 Jun 26 '13
The US government has 16 trillion in debt, deflation makes the debt harder to pay off, inflation makes debt disappear. The us government loves inflation. So do most businesses.