The Fed argument

10 posts

Some decent points there.

Well, you are right, that a lot of the bad things mentioned won't happen due to 2-3% of deflation.

But you still haven't rebuffed my original a priori argument: that government golden standard inhibits rather than helps business growth, and I don't see a manageable option, how government is going to regulate the influx of new money into the system, if you do accept the premise, that it should actually do it. What would the methodology be? Moreover, I don't see things quite the same way you do:

money gaining value -> people spend less, postponing sales till prices drop even more -> people spend less, business earning less -> business growing less, buying less services from other business -> the whole business market if not shrinks, but experiences a certain retardation of development -> people invest less, since the whole market seems to be slowing down and the profitability falls.

Just because GDP grew during golden standard era, doesn't mean, that it wouldn't have grown 2-3 times faster without it. We just don't know.

Inflation... Inflation is an interesting concept. Currently its being used as a tax on savings. Invest/buy or loose value. 100% collectability. Very efficient. Not very moral, but it does work as a sort of whip to force people to do something with the money, rather than keep it in a box.
Bitcoin is the big one in the geeksphere right now. It's a pseudonomynous crypto-currency that's limited to 21 million "bitcoins"
If I remember correctly, The Great Depression also began with very strong deflation. The problem with deflationary periods, is that its hard to say, when they end because of the spiral the economy goes into. The Japanese have actually entered the second decate to be considered 'lost', last time I checked.

Well, inflation despite being de facto a dishonest, secret tax, and market destabilizer if used by the wrong people, actually has economic utility - it really does spur economic activism and stimulates investment.

Deflation may be not too bad, but it lacks utility from my prospective. It has bad sides, but no good sides.
Interesting. Its not in circulation in Russia right now. But we have more than 3 of our own - Yandex.Money, RBK.Money and Money.Mail.

Actually, the situation there seems to be developing by the book (don't remember the name of that one, where Mises stipulated private currencies as the best option): all major competitors already provide users with zero inflation, free exchange of one into the other on virtual markets and complete self-regulation without supposedly necessary (as government would want us to believe) government oversight.

As Mises also predicted, the number of such currencies would stay at 3-5 major ones, with the only difference being, which money creating company offers a better solution for each specific kind of enterprise.
Thank you.

I explained how deflation isn't necessarily bad for investment. It just makes money worth more. I don't see why this would impede investment. Businesses would just ask for smaller loans than what they would have in an inflationary environment.

I don't see how you effectively argued that the gold standard inhibits growth. I just see the assertion that this is the case, and pointing to price deflation as the cause. I already dispelled the notion that price deflation must be bad for investment.

As for how gold (as money) would work, that's up to market forces again. As money gains in value, mining for more gold and getting more gold becomes profitable. More gold is extracted. As gold enters the system (as money) it then starts to lose purchasing power as there is more money chasing the same amount of goods. These opposing forces equilibrate. If there is too much of an increase in gold production, gold loses value and isn't worth mining. If there is a "shortage" of money, it increases in value and mining it becomes worth it again.

And when I speak of gold standard, I am not 100% dead-set on gold. I just argue for a commodity-backed standard, be it gold, silver, or any other thing.

This is the deflationary spiral. According to this logic, no one would ever buy a computer because they are always dropping in price. Also, during periods where the price of food decreased, people would rather starve to death than spend their money that earns more purchasing power with time.

You are arguing that people will no longer consume since their money increases in purchasing power with time. But don't other assets increase in value with time? Mutual funds, stocks, bonds, commodities, portfolios of all sorts? People can trade their money for these things and never cash out, because the value of these things increase. But isn't this the current paradigm? That you put money into your 401k and that it increases with time? Why spend any money at all if assets increase in value?

This is all just a matter of time preference. People like to invest some of their cash holdings to earn interest and spend some of their cash holdings for goods. If the price of goods drops, then people will be willing to buy these things for cheap.

This makes it much more obvious that the deflationary spiral must end somewhere. It ends up in equilibrium. People express time preference. You can increase you purchasing power in an inflationary environment buy purchasing shares in diversified portfolios. The fact that people can do this with their money and increase their purchasing power doesn't cause a deflationary spiral.

This is a decent objection. But this is also a counter-example to the claim that deflation must result in depression or recession.

Yes. It makes people put it into investment vehicles or spend it, rather than keep it in a box. This is one redeeming aspect of inflation. The drawback is that it decreases/destroys liquidity and savings, making an economy more susceptible to shocks.

The effects of holding onto money during a deflationary period instead of putting it towards investment is a very interesting area of research. But then again, it's not much different from investing in a commodity...

From what I can tell, the Russian dudes don't like the Bitcoin, probably because they're invested in their own currencies.

I've just read about Bitcoin, but couldn't understand squat.
Whereas Yandex.Money is an e-currency, what the hell is Bitcoin?

How do I actually buy these coins and where?


mtgox is the biggest market for bitcoins. You can go there to find out how to trade them. In order to generate bitcoins, you have to have your computer calculate hashes. Look up "joining a bitcoin mining pool" or something like that for more info. That part can get pretty technical.

Basically, all bitcoin transactions (from one address to another) are stored in a distributed database. The transfers happen over encrypted channels, and this setup makes it impossible for anyone to counterfeit bitcoins. So it's not like "e-gold" or anything like that. It's a 100% distributed currency system.


Very, very interesting. An outright revolt against decree currencies. Gotta see the history of its value fluctuation, maybe I'll buy some.


But isn't there something erroneous about the method of distribution? I mean, what would stop someone from installing client program on 10 000 PCs and become a millionaire?