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And then there will be another Bitcoin competitor (Litecoin). And another. And another. We will never run out of bitcoin and equivalent products.
Stabilizing the price is definitely an issue. Can it be stabilized?
Because you want it today.
The "fear of deflation" argument is now pervasive among monetary theorists. The argument goes that if people know that prices will fall, they will indefinitely delay all economic activity.
This ignores the time preference aspect of economic decision making. For example, I will buy my cup of coffee today rather than wait a day or week to save 1% because I WANT IT TODAY.
We've seen periods of significant economic growth coupled with falling prices.
Before going fiat, we had slowly falling prices in our nation's period of largest economic growth, the late 1800's.
"Wholesale prices dropped 47 percent from 1879 to 1900 and economic growth averaged nearly four percent per year." - Ron Paul
http://dailyreckoning.com/the-mythical-merits-of-paper-money...
Earlier quoted context omitted.
Why would deflation converge to the rate of global economic growth? I'd think that the opposite tends to be true, eg. the inflation is often correlated with growth.
Suppose the only good in the world is apples, and the only currency is bitcoins. There are 21 million bitcoins in existence. In 2013, we produce 21 million apples, so we could say that each bitcoin is worth 1 apple. In 2014, we produce 42 million apples, which is 100% annual GDP growth. Each bitcoin is worth 2 apples, which is a 100% appreciation in the value of the currency, aka. deflation.
Grow the (effective) money supply with lending and deposit accounts, and apples / dollar falls. When things are growing, people know there is money to be made, and so expect they are more likely to be paid back, and so lend more freely.
A few thoughts: 1) Conversely, why would I want to keep my wealth denominated in a currency that loses 2% value every year? 2) Supposing 90% annual deflation forever, as this article does, is disingenuous. Bitcoin is currently a 5 year old technology, and of course it will have periods of significant volatility. In the long run, bitcoin will stabilize, and deflation will be on the rate of global economic growth, curr…
Currencies are stable (and losing 2% value per year) because governments actively manage the supply of money to keep it stable in the face of very volatile demand (caused by what Keynes called "animal spirits". Since demand will fluctuate Bitcoin will fluctuate wildly for the foreseeable future like the value of gold has done and is doing. Bitcoin will never be a stable, safe place to store wealth for that reason. It…
The 'depreciating currency is a problem' argument is true for the existence of any asset having a higher yield than your widget factory. Why wouldn't you invest in that high yield asset instead of your widget factory? In this way, you can view _any_ appreciating asset as a reference unit of account. It is just as easy to see your egg and milk purchases as units of the high yield asset and delay your purchases for the…
> why buy something today if it will be cheaper tomorrow? Because you want it today. The "fear of deflation" argument is now pervasive among monetary theorists. The argument goes that if people know that prices will fall, they will indefinitely delay all economic activity. This ignores the time preference aspect of economic decision making. For example, I will buy my cup of coffee today rather than wait a day or week…
> why buy something today if it will be cheaper tomorrow? Because you want it today. The "fear of deflation" argument is now pervasive among monetary theorists. The argument goes that if people know that prices will fall, they will indefinitely delay all economic activity. This ignores the time preference aspect of economic decision making. For example, I will buy my cup of coffee today rather than wait a day or week…
A few thoughts: 1) Conversely, why would I want to keep my wealth denominated in a currency that loses 2% value every year? 2) Supposing 90% annual deflation forever, as this article does, is disingenuous. Bitcoin is currently a 5 year old technology, and of course it will have periods of significant volatility. In the long run, bitcoin will stabilize, and deflation will be on the rate of global economic growth, curr…
> why buy something today if it will be cheaper tomorrow? Because you want it today. The "fear of deflation" argument is now pervasive among monetary theorists. The argument goes that if people know that prices will fall, they will indefinitely delay all economic activity. This ignores the time preference aspect of economic decision making. For example, I will buy my cup of coffee today rather than wait a day or week…
Are they right and both deflation and inflation can supply economic growth? If so, does that mean another factor is the main proponent for growth?