1) It is clear that a deflationary spiral, defined as possessing the characteristics of being unexpected, not written into contracts or loans, and relatively severe (double digits) while accelerating is bad. The great depression makes this clear. We can also see it in the current Greek situation. However, runaway inflation is equally bad, as we can see from post WW1 Germany, and modern day Venezuela and Argentina. Is it the fact that the change in the buying power of money is large and unexpected, or is it the sign of the inflation percentage that is bad?
2) Under the current debt based money system, the negative effects of inflation fall primarily on the poor. The wealthy purchase government bonds, which protect them inflation. They also have bank accounts, or finance debt either directly or indirectly. This means that instead of inflation falling on the populace evenly, it falls doubly on the poor.
3) Under a constant money supply system that eschews debt, the rich must seek out investment that actually increases productivity, rather than doing parasitic zero-sum investments (such as bond purchases and loan giving) that merely transfer value from one person to another. This would tend to grow the economy faster.
4) Under a constant money supply (like Bitcoin in a few years), wages and prices would tend fall by however much the economy was growing (2% - 3% a year), but the raises that people give out for seniority would tend to overwhelm the wage issues.
2) Unexpected inflation actually benefits the poor because they tend to owe more debt, and own less fixed interest assets such as bonds.
3) Bond purchases and loans aren't zero sum investments. If we banned loans today the economy would not expand faster but would start to shrink very quickly. Contemplating banning loans from a demand side would be terrible for our economy because the velocity of money would shrink considerably and we would end up with incredibly painful deflation.
4) With mild long term deflation you run into demand problems and lack of investment. Deflation makes investments look less profitable then they are because hoarding money has great risk free returns, and the nominal future cash flows will be smaller because money will be more valuable. For instance if you buy a house for $100,000 and it returns $10,000 a year in rent. After 30 years of deflation it will only be returning $2,500. This means that many productive investments are not made because it makes more sense to hoard the money, leading to under investment and an underutilized economy.
The only economy that in recent history has experiences predictable deflation is Japan, and it does not look like an economy we would want to emulate :P.
Instead of most of humanity having to suffer through losses of wealth because their currencies are small and volatile, everyone will have stable currency pegged to their local price level, and they'll be paid to hold it.
Of course, local stock-specific bubbles can still exist, but they are always subject for arbitrage and voluntary exits. Global money bubble is more destructive because use of a certain money is enforced by laws and therefore people cannot easily exit or switch to alternative.
Hard money prevents the Fed from changing the inflation rate but it doesn't prevent random and severe changes in inflation and deflation.
From 2010 to 2013 bitcoin had a deflation rate of 96%. Which is insane any normal economy would turn Mad Max if it had that type of deflation. If I had received a loan for my house for 100k in 2010 I would have had to repay $1.5 BILLION in 2013.
Then from 2013 to 2014 it had an inflation rate 353%. If inflation leads to bubbles and we all used bitcoin this inflation would led to the mother of all bubbles.
So a thesis that says that saving is easier if you make debt more expensive has some problems.
I'd ask him one question: how is the idea of regulated, political and centralized money working out for you?
That's kind of a straw man, because the Euro is all of the burdens of a centralized fiat currency while lacking almost all of the benefits (or at least the ones most relevant to Greece's current situation).
Having a unified monetary policy among countries with incredibly fragmented and disparate fiscal policies is a recipe for disaster. Even in the US, fiscal policies are relatively unified at the federal level and states are prohibited from backing their own debt the way nation-states (like the US federal government and Eurozone countries) can.
And on that note, look at the USD. It's the strongest fiat currency in the world and the preferred medium of exchange worldwide, even despite all of the outstanding issues with the US economy and the state of the US national debt. Clearly a centralized, fiat currency can be powerful if you don't set it up for failure from day one (as the Euro was).
There's a difference between a temporary setback and problems with the fundamentals. This is the case in the private sector and it is the case with sovereign entities, and the people who keep buying US Bonds obviously understand this.
> and the state of the US national debt.
Debt is only a problem if you can't service it. This is doubly true with sovereign debt, where servicing debt provides people a safe place to invest their money.
None of what I said is controversial among people who understand economies. The fact people whine and moan about the USA's debt is a function of how easy it is to score cheap political points by taking advantage of the ignorant.
The US is completely different. No matter how bad things get in Detroit, nobody seriously suggests expelling Michigan from the US.
Note that some BTC enterprises today like Coinbase actually defer blockchain transactions when users are exchanging in their network. That way they can aggregate small transactions and enable temporary chargebacks. But that really is all a bank can do at most - delay doing the final transactions - because they have to commit them to the global blockchain or you never actually made a transaction.
Blogging? Yes
http://yanisvaroufakis.eu/2015/07/03/imf-backs-ever-so-pecul...
EVE Online's economist was Dr. Eyjólfur Guðmundsson https://twitter.com/ccp_dreyjog and really did wonders with the economy, you should watch some of his presentations on the state of EVE online's economy. He was doing several pieces for their EVE FanFest.
0 - http://www.wired.com/2015/04/overstock-files-offer-stock-wor...
See this graph http://i.imgur.com/vRsIMvt.png
edit: Oh I see now who the author is :D well euros or bitcoins the way Greece is going inlation or deflation will be the least of their worries....
Bitcoin is deflationary (as negative inflation) in the first sense and this is the deflation yanisv is talking about.
However I would be surprised if Spanish, Irish and Portuguese citizens are not looking at the Greek situation and wondering if they need to take some action. Coinbase, circle etc need to target these markets before they experience capital controls.
This is completely different from Bitcoin, whose value arises from the cost of mining (hardware purchase, power, maintenance, and time spent), and people's willingness to exchange that for other currencies and/or goods.
This is not true, and represents a fundamental misunderstanding.
The value of bitcoin arises solely from the demand for it. The cost of mining is driven by the value of bitcoin, not the other way around - if demand for bitcoin were to collapse, the price would drop, and all rational miners whose current operating costs exceed the new price would stop mining. This would result in the next blocks being mined very slowly, and would eventually result in the mining difficulty dropping, bringing the cost of mining back into line with the market price.
the EU expansion to the east broke greece's neck. a well educated, motivated workforce entered the EU, but smartly like Poland did not join the Euro. Amazing growth in Poland throughout the crisis of the last 7-8 years, catastrophe in Greece.
See comments from Lithuania's prime minister and others who are getting fed up with Greece.
Interestingely enough this fits Samuel P. Huntington's predictions of the Clash of Cultures. He had Greece as part of the orthodox area, separated from catholic/protestant Europe which spanned from UK to Poland. He got a lot of shit for his theories at the time, was quite prescient in hindsight.
Nothing against BT...but sheesh.
Chain of causation is: money printing used to buy debt -> underpricing of debt risk -> unsustainable debt funded malinvestment -> debt collapse -> deflation as effective money supply shrinks
The irony is that they use fear of deflation to justify the very act that causes the malinvestment and debt collapse.
