The thing is, it only causes inflation when that money circulates. But the Fed is just pumping it directly into the stock market. The result is sky high valuations and asset prices, but very little change in the actual day-to-day economy's monetary supply. This is why inflation is still under 2%. And sure, people could sell out and take their cash to invest elsewhere, but with 0% interest rates there's literally nowhere else to put it.
This was the downfall of Hertz already and it will be interesting in 2021 with the banks...
https://www.investors.com/news/stress-tests-bank-stocks-divi...
Isn't it plausible that the dollar supply isn't actually reaching consumer markets, and consequently inflation stagnated because a drop in purchasing power leads to a drop in aggregate demand?
Then there’s the whole thing of you way overstating the impact of printing money and of stimulus on inflation. Inflation remains on track for a perfect bulls eye 2% per annum. The velocity of money is a huge factor you aren’t considering. It’s dropping and these are measures to counteract its drop. A lack of printing and stimulus would be deflationary and that would be way, way worse than inflation.
In all serious, why is a little deflation way way worse than inflation? To put it another way, if inflation is good and deflation is bad, why do I need to buy deflationary commodities as a hedge against it?
[edit] The point of inflation is manifold but to answer your question specifically inflation is meant in part as an incentive to invest. It’s function in a capitalist society is to encourage group evaluation of equities and help pick winners and trim losers. It sets the benchmark rate of performance for your investments.
Money is only useful when it moves. If it’s not collateralizing loans, and changing hands, economic activity slows and stops. This economic activity is jobs people do day to day.
Deflation slows activity because if your money is worth more tomorrow than today it encourages inaction. In its worst incarnation you get a deflationary spiral where prices fall to stimulate buying but deflation continues anyways, and so on.
We can talk about whether that’s a good thing or not but it’s very much not what the coiners are advocating for.
Oh, you added more after the beanie baby topic . Yes, I understand that inflation is a way to motivate certain behaviors. Some of us resent the coercion.
I still don’t understand the extreme fear of deflation. Like, if the value of dollars increases over time, nobody will buy anything and the entire economy will collapse? I just don’t see that happening. People can’t eat dollars, or sit and stare at them in the evenings when they are bored.
... until Tether explodes, and then it's musical chairs to figure out who the bagholders will be.
https://www.courtlistener.com/docket/16298999/in-re-tether-a...
The facts, AFAIK are:
- Bitfinex (or rather some entity controlled by the same folks who own Bitfinex) can emit as much Tether (USDT) as they like.
- They claim to have, in a reserve bank account somewhere, one dollar for each USDT ever emitted (which - in itself - is problematic because of counterparty risk).
- They have never - so far - provided a proper third party audit of said reserve bank accounts.
- Even if they do *actually* have one USD stashed for each USDT in circulation, it's highly unlikely they're just letting it sit there, it's likely invested, therefore risk, therefore the equation 1USD==1USDT is iffy at best.
- emitted USDT can easily be used to buy BTC and pump the price up
The biggest counter-argument is just the orders of magnitude of the two. Tether's market cap is 20b whereas bitcoin's is 350b. While that's large enough to cause a temporary shock and can be used for short-term manipulation, it likely not enough to cause long-term damage.
For instance if I told you I had a trillion dollars in an offshore bank account, and that if you gave me $1 I’d give you a funbuck and throw it on the pile with no obligation to redeem it, would you up and believe me right away? If so I may just get into this crypto business after all.
Merlin [15.10.18 10:02]
please understand all this could be extremely dangerous for everybody, the entire crypto community
Merlin [15.10.18 10:03]
BTC could tank to below 1k if we don't act quickly
You at least smell smoke dontcha?
I guess this makes it your move! I expect that audit shortly!
[1] https://onlinelibrary.wiley.com/doi/full/10.1111/jofi.12903
[2] https://twitter.com/brockpierce/status/961044456421183489
[3] https://www.reddit.com/r/Buttcoin/comments/hantb2/buttfinex_...
[4] https://cryptonews.com/news/how-merlin-lost-patience-trying-...
1. A "market cap" doesn't mean anything for a currency. But let's say it did. You know that a market cap is simply defined as the most recent transaction price times the number of outstanding assets yeah?
2. So that means if you control the most recent transaction you control the price.
3. Tether is minting $1B of new coinage per month and accelerating. They then use this money to buy bitcoin. They structure it at opportune moments to prop the price up.
4. There isn't $512B in value you can actually extract from Bitcoin. If you began to sell, the value would rapidly deflate towards zero.
This is part of why market cap is such a poor way of measuring a currency. A small amount of transaction volume on the margin defines a false sense of value for the community.
(not to mention that so far there has been absolutely no broad inflation almost everywhere around the world, though this can of course change)
Is it really? BTC is renowned for being systematically and thoroughly manipulated. It makes no sense to expect any correlation that is based on the assumptions of a free market.
The only downside is you can sell a small portion of your house.
There is insatiable demand for treasury bonds and dollars, and as well dollar reserve currency status means that the govt can find buyers for its bonds without yields rising, hence tempering inflation. A strong dollar makes imports cheaper, hence also lowering inflation.
Studies show only 1/3 of the stimulus is spent on consumer goods. The rest is saved, invested, or used to pay down debts. Such deleveraging is deflationary.
The amount of money is still relatively small and infrequent compared to the vast size of the US economy and total consumer spending and other activity.
Even if inflation was to rise, you would not need to hedge, because everything would be shifted higher, such as stock prices, home prices, wages, etc. Because the US dollar is implicitly understood as the global and standard benchmark/unit of wealth (the Forbes 400 list is in dollars, not euros), it means Americans do not lose wealth if price levels rise or if the US dollar falls. Bitcoin and precious metals could be an effective hedge if you live in a country that does not have reverse currency status and you need to stave off loss of wealth relative to the US dollar due to the local currency falling against the dollar.
In any case, the fact that fiat money has not been able to prevent the business cycle from creating devastating crises would seem to imply otherwise.
No. It is almost as if the two situations are not related.
Some nice graphs from Ray Dalio that show it plotted out for various currencies throughout history if you scroll down: https://www.principles.com/the-changing-world-order/#chapter...
If the goal is to not starve, the government could give, you know, actual edible food to people and not pieces of paper. (I am not suggesting this, it is just another possibility)
But to your more broader question, the fixed amount of bitcoins is only a problem if you intend to keep the system working as it has, but bitcoin advocates favor a new way (or the old gold-backed way) to look at the economy on which savings is the bedrock of it and not debt like we currently "enjoy".
So, there's a fixed amount, but in practice, there quite a lot of it (2.1e15 if I'm not too drunk).
That’s part of what inflation does. It allows the monetary system to react to shocks and changes like population growth and global pandemics. Deflation without creation of monetary units benefits the existing concentration of wealth as you and your children get to fight each other for scraps. These pieces are all connected. This system will lead to the existing moneyed class of coiners becoming more and more wealthy as a function of economic productivity forever.
This, along with depriving The Great State-an of a means to operate an effective revenue collection system, has been the real objective since the beginning. Decentralization has never been anything other than a mantra, a fig leaf to be casually dropped when no longer useful or credible. "Hyperbitcoinization" means never having to say you're sorry for selling a fraud to 'the masses'
Oh and others mention subdividing bitcoin directly so there is that.
You could still layer a system like that on top of Bitcoin. However, you might have trouble getting people to accept your bitcoin IOUs as equivalent to real coins.
That said, why would you want that? Why not just use fiat currencies where they are appropriate, and leave Bitcoin for the use cases in which it's appropriate? It doesn't need to replace the whole economy to be useful as a technology.
If spending is up, wouldn’t the stock market outperform Bitcoin anyway?
If we have rapid inflation, wouldn’t money go into something tangible and of value before something intangible and perhaps of value?
But really, inflation hedges don't grow in value during times of high inflation, they just don't lose as much value as the fiat currencies do. That is how they protect against inflation.
The dollar is way down. It doesn't matter if the DOW hits 1 million if the dollar is worthless.