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Comment by cfontes | Hacker News Reader

When I was young in Brazil we had an inflation rate that was crazy ( 1985+ )

I remember my parents getting their paychecks and running with me and my brother to the supermarket which was CROWDED to get the whole month supermarket done. If you waited 3 days or so you would not be able to buy all the food you needed.

It is terrible I can assure you that.

Here is the kind of inflation I am talking about.

"It stayed in the 100% level until the mid-80's and then grew to more than 1000% a year, reaching a record 5000% in 1993." Wikipedia.

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I have some "over printed" bank notes and postage stamps from the Weimar Republic. The money would be worthless by the time they got it printed, so they just ran it through another press to add more zeros. My grandparents lived through that.

Bitcoin's deflationary inevitability is actually worse, I would argue, than the kind of inflation you mention.

How so? That sounds pretty dire.

Imagine if you had to pay off any kind of Bitcoin debts this week.

Simple solution: don't go into debt. If you must go into debt, make the debt in terms of hours worked or some other asset.

That is a great way to establish an aristocracy, where only people who are already wealthy can ever start or maintain a business. What do you think venture capitalists are? They are creditors, whose loans enable people to start businesses they could not otherwise afford. Your great idea for disrupting some old entrenched industry will almost certainly need to be funded, and if you are not already wealthy that will mean taking on debt.

Not only that, but there are plenty of people whose businesses need to take on short-term loans to remain competitive. Maybe your business is profitable but you do not have enough capital to fill a really big order -- which could be a great opportunity for your business to grow. If you are not going to take on any debt, then the really big order will be given to your competition, and eventually your business will fail.

Debt is not universally bad; there are a lot of cases where debts make sense. Debt is bad when you cannot repay it, which is why deflation is bad.

I would argue that if the global economy operated on a fixed-supply currency, there would be no aristocracy. Those with the largest stash of currency would have to spend some of their wealth in order to realize its benefits. This spending would naturally result on a more even distribution of wealth.

It also wouldn't be the end of debt - just the end of the ridiculous debt-for-life system that most people live like today.

"I would argue that if the global economy operated on a fixed-supply currency, there would be no aristocracy. Those with the largest stash of currency would have to spend some of their wealth in order to realize its benefits. This spending would naturally result on a more even distribution of wealth."

You are assuming that the richest people in the market would not have any income at all. I think that assumption is pretty dubious. Sure, they will spend some money; but all they would need to do is balance their budget, and they would remain rich perpetually since the currency has a fixed supply. In fact, if their income was larger than their spending, they would actually become wealthier over time, as they removed more and more money from the market and took advantage of deflationary effects.

Yes let's turn back the economy to the situation before 1940, when most normal people couldn't get credit. What could go wrong ?

The GFC being the a chain reaction started by ~2% less borrowing you say ? Nah, that won't happen "this time".

Like it or not, our economy is based on forgiving debt at the rate of inflation. And it's better than what came before. Can we please stop deluding everyone else ?

You mean shorting bitcoin?

No. Like if you have a debt in a deflationary currency.

Start with this: you owe 10% of your income this year as payment for debt. Suppose this is a mortgage and you'll be paying the same amount for the next 15 or 30 years.

Assume that under either inflation or deflation your salary/income changes each year with the inflation/deflation rate. [1]

    Inflation rate of 3%
    Deflation rate of 3%

So year one you pay 10.00% of your income to debt.

Year two: Percent of income paid to debt under inflation is 9.70%. Percent of income paid to debt under deflation is 10.30%.

Year ten: Percent of income paid to debt under inflation is 7.66%. Percent of income paid to debt under deflation is 13.05%.

[1] We already know this isn't true for many people under inflation, though it hopefully averages out to better than inflation over several years (between bonuses, pay raises, pay bumps from changing jobs). The same will likely be true under deflation.

Why wouldn't nominal rates simply be adjusted to account for inflation/deflation?

With deflation (i.e. prices drop so the purchasing power of $100 rises over time) you lose if you're selling a product/service with fixed costs or paying off a loan while your salary is dropping. With high inflation (i.e. prices rises so the purchasing power of $100 drops over time) you lose if want to buy a certain amount of products/services and your income is not rising as fast. I'm not an economist but both are bad.

With example one why do merchants have to sell at fixed prices? Why not dynamic, pegged to something more stable like usd?

I meant fixed costs, i.e. the cost of purchases needed to provide your service/create your product (which you may not have control over).

Nobody will spend, tomorrow you can get your stuff cheaper

This is exactly like how nobody ever buys cellphones (or any other electronics), because those prices are always falling and you could just wait and buy a better one next month.

The worry with deflation isn't that all of a sudden everyone will literally stop spending money ever again. It's that it creates enough incentive to delay purchases and removes enough incentive to invest savings (rather than stuffing the money under a mattress) to shift the economy as a whole to a lower gear. The last time the USA experienced a period of significant deflation, for example, unemployment jumped to 25%. People tending to hold onto cash is the same thing as people tending to not be willing to pay others for work.

Probably but at least my paycheck is not attached to it. :D

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