Way to avoid the question. Hyperinflation does not translate into more spending, quite the contrary, it translates into people fleeing the currency en masse. My question still stands.

An the idea that inflation encourages prudent investment is also a myth.  If sitting on cash is the wisest investment choice that can be made, then there is either something wrong with the investors' information or the economy in question.  Either way, where is it written that (any) investment is better (from any perspective) than no investment?  It's certainly true that wise investors will not perfer to stay in a cash position when inflation is rotting away the purchasing power of that cash, even at a mild 2% APR; but it is not true that the investments that said investors will choose are better for the economy.  Even under the best conditions, those investments are better for the investor.  There is no evidence that an economy in 2% deflation is worse off than an economy with 2% inflation, but much that says the beneficiaries of those conditions are much more likely to be closely tied to the central bank in the latter situation.

All of this is inmaterial to Bitcoin, which isn't deflationary, and cannot be deflationary until well beyond any of our predictable life expectancies have long since passed.  Bitcoin is presently inflating at about 40% APR, and is a many year before it's ready for a true economy.  Bitcoin's present value is reflective of the present speculators' collective view of it's future value.  There is no significant bitcoin economy to speak of.  There won't be until Bitcoin's inflation rate is below the inflation rates of nations that might wish to take it up.  Many third world nation's currencies still inflate at rates well beyond the 'ideal' target of 2% per year, even the stable and functioning ones.  If you live in a nation that is inflating it's currency at 9% (I suspect that China is close to this number, but the official rate is about 5%) then when Bitcoin breaks that number, the local online economy is going to begin to prefer Bitcoin (or it's successor) once it crosses that rate.  If only 1% of the online trades that occur in China are in Bitcoin, it's trade demand will be high enough that it's record value of $30+ dollars per would easily be justified.  The price presently implies that the collective wisdom of the speculators believes that the odds of this level of success in the future is less than 25%.  I would tend to agree with this sentiment.  Whoever is here that doesn't believe that Bitcoin is an extremely risky venture, shouldn't really be here.

On a side note, the effective APR for Greek bonds shot to just over 80% for a time today.  That says that the good money thinks that the odds of Greece paying back it's bills in the future are much lower than the odds that Bitcoin succeeds to grow an economy large enough to justify a trade value of $30 per share.

Yes, but I don't think that Japan is a good example to hold up.  Their government is in debt to 180% of their annual GDP.  They are actively trying to devalue the Yen, in order to encourage exports.  So is basicly everybody else, but only the Chinese do it well.  The stability of Japan is, I think, largely a byproduct of their culture; and one I don't think will survive their demographic peak in the near future.  I can't predict how it will end, but I give high odds that their social cohesion is going to be tested as their aging population is increasingly dependent upon a (relatively) shrinking working age population.  The same can be said for the United States and Europe, but Japan will certainly get there first, even if the US is more likely than Japan to end up in a class war as a result.

True, but price deflation (and price inflation) are largely a reflection of the currency's perceptions at the time, not it's fundamentals.  Said another way, the aggregate value of a currency (within a working economy, not speculation as in the present case of Bitcoin) is, in large part, a result of the confidence of the user base of the currency's "usefulness" to themselves in the future.  Since the present and future supply of Bitcoin is a known variable, only an increase in the demand can result in price deflation of goods as priced in Bitcoin.  This also means that a greater number of people have confidence that they can spend Bitcoin in the future; which in turn means that it's impossible for the 'deflationary spiral' theory to apply to Bitcoin.  For if a 'deflationary spiral' were to occur in the Bitcoin economy (whenever that were to materialize) this would result in a drag in it's own perception of usefulness, and thus limit it's value.  It's a self limiting factor, so long as the economy at large has an alternative to the currency in question, which in this case is the local currencies that Bitcoin stands to replace.  Thus the deflationary spiral is impossible as applied to any alternative currency.


I'm not sure that I agree with you here.  Not entirely.  Trading in Bitcoin is quite easy, but aquiring bitcoin in order to trade is not easy.  Using credit cards for online shopping is still easier, the privacy concerns notwithstanding.  I agree that there is a great potential for Bitcoin to dominate as a superior exchange currency, but that remains to be seen.  It is no more difficult for me to trade my metal for dollars and then go buy a new washing machine than it is for me to trade my dollars for BTC to buy books online.


Gold has been on a record tear for the past decade, but I wonder (without checking) if a purchase of Apple stock in 2000 would have outperformed gold oever teh same time frame.

So then the currency died because everyone escaped from it, not because there was more trading going on as you claim.


I agree with this. I've never claimed that it encourages prudent investment, only more of it. Some of them will succeed, some will fail. What's important is that there is a real chance of success for everyone. My argument is that under deflation the chance of success is near 0% so most people will choose to hold the currency instead. See my SkepsiDyne example for the rationale.


It does mean less growth, negative growth, because less investment directly means less jobs and more saving, thus less potential customers and revenue for the successful companies. It is a vicious cycle. The companies who were barely successful will end up failing from reduced margins and that will mean even less potential customers for the companies who are very successful. Eventually there will be none left.

No, lack of supply is the cause of inflation. Spending can remain at the same levels while supply goes down.


No, I'm claiming that having some companies is superior to having no companies.


No, because they are not successful by themselves, they require constant government funding to avoid bankruptcy.


No, because it doesn't really eliminate unemployment. If the money used for war were just given back as tax cuts it would have the same effect on employment. Also any war related jobs are gone once the war is over.


No, I believe spending is necessarily inversely related to unemployment.


No, I don't believe they are bad. No idea why people keep using the electronics argument as they are still operating in a inflationary macroeconomic environment. The incentive to spend your money now hasn't gone anywhere.

Exactly. You could also say "A 0% interest loan in a 5% deflationary economy is equivalent to a 5% loan with an ideal 0% inflation currency".
Note that I don't advocate for inflation.
But Why would you lend at 0% interest with the deflationary currency?
The loan is just not made. That's what I claim in my example about deflation discouraging investments. I prefer to not discuss if deflation discourages spending or not. But what's wrong with my example?

EDIT:


I agree with you more than I thought. But I don't agree with your claim that inflation allows unprofitable companies to be profitable. It depends on how the inflation is created. If it is created by loaning money into existence and monetizing debt, then, yes, it also lowers interest rates. But inflation per se rises nominal interest rates having no effect in real interest rates. An investment with 5% inflation will be just as profitable as the same investment with 0% inflation, but the lender will receive 5% in concept of inflation premium.

In the end I advocate for modest deflation plus demurrage.

An institution would not, nor would the population be compelled to invest for fear of losing purchasing power. An inflationary environment forces a rational actor to chose best of two evils if no better alternative is available. Whereas in a deflationary environment, doing nothing is a rational action if no better options are available.

In an inflationary environment, one has less incentive to invest in his neighbor with no terms, puts a bigger premium on generosity. The only loans are institutional (banks) rather than interpersonal in the community. In fact, in an inflationary environment, few people even have savings to lend. In a deflationary environment people would require fewer loans and would have an easier time obtaining them from neighbors if they did require/desire a loan.


In Real terms (inflation adjusted), yes. A company only needs to beat the inflation rate, but it does not need to create purchasing power. This is obvious in a hyperinflating economy, but less obvious in 2% inflation.

Why are you stuck on interest rates? Until a company pays off its creditors, it has not been proven successful. A company that beats the inflation rate is successful in nominal terms, but has not necessarily profited in real terms (increase purchasing power). Inflation creates the incentive to invest in companies that are not profitable in real terms because doing so is better than doing nothing. While this creates jobs in the near term, it is detrimental to real growth. Inflation is a major contributor to the business cycle - bubbles and contraction.

"If you think deflation is just the devil, then fine, don't use bitcoin"


Hey I like the devil!