I am enjoying this thread even if we are a little off-topic. Apologies to OP.
Sounds like a fair summary of current mainstream neo-Keynesian monetary policy. I just wanted to point out to you that this system is by no means normal, stable, or rational, and it has no successful historical precedent. It's just been "the system" for the past 40+ years in G8 countries.
You can hardly think of Friedman as a neo-Keynesian.
I'm not familiar enough with the terminology and schools of thought to debate you on this. All I know is that you're backing your arguments with roughly conventional 21st century capitalist economic theory. I don't necessarily refute this theory, but I regard it with a healthy dose of skepticism, and I believe it's not necessarily applicable when analyzing bitcoin. So debates over bitcoin money supply, deflation/inflation, etc. are not necessarily covered by this theory.
Aren't you forgetting that inflation also arises from increased monetary velocity, not just increased supply? So the increased nominal exchange value is not necessarily "catastrophic deflation" at all.
That is true, but velocity is something that is hard to control, is a function of people's habits, mood and so on, and is especially a function of the perception of whether an asset is speculative or not. When you look at monetary velocity, it is not something that has uniform behaviour, and remains grossly within some boundaries. You cannot "regulate" velocity. You cannot make people spend faster or hoard more. In fact, velocity is at the origin of two instabilities: the deflationary spiral, and hyper inflation. The deflationary spiral happens when people speculate on the strongly rising value of a monetary asset: they hoard it more and more, lowering as such, the velocity, and hence increasing even more the market value of those few coins on the market, confirming the speculation of rise. This is bitcoin's behaviour.
On the other hand, hyper inflation is when people speculate on a strongly falling value of a monetary asset: they try to get rid of it as quickly as possible, increasing as such the velocity to very high values, and hence, decreasing even more the market value of the mass of coins chasing goods in the market, confirming the speculation of drop. This is what has happened to some famous hyper inflations like the Reichsmark.
The knowledge of a stabilizing mechanism avoids both instabilities, but one doesn't have any handle on people's spending decisions which determine velocity ; as such, the only thing one has a handle on, is the coin emission.
Well, I must disagree with you here: velocity is precisely what is interesting about the last 20 years of monetary, banking, and economic policy and law. The establishment is moving more and more toward systems which CAN control velocity and DO. Read up on the cashless society. The current vast majority of financial transactions use electronic fund transfers which may be FROZEN at any point. People don't even realize how quickly all of their bank deposits could evaporate or move into an inaccessible state. Any future "Electronic bank runs" will end in seconds rather than days. AML laws are becoming so tight that the cash economy is hugely curtailed and has high overhead. If you talk to an economist about controlling monetary velocity, they will even tell you that it's necessary in this age of rampant money-printing to prevent hyperinflation!
So of course it's possible to control velocity - that's precisely what the USA Fed (for example) has been tasked with (control of supply and velocity meets their inflation targets)! They influence velocity by setting interest rates and printing more free money for banks.
Cryptos represent a new challenge to this regime. Velocity is really only bounded by network capacity, and it's not decreasing at all, in fact it's increasing. This is not any deflationary spiral. Furthermore, the coin supply is increasing every day. Controlling the global movement of cryptos is already creating headaches for the financial elite. Imagine if cryptos grow 100-fold in the next ten years - they could fuel a vast Forex arbitrage market, even undermine the central banks' control of exchange rates. Many outcomes are possible.
But then it is not in a state to become a currency ! If the argument against why it is not behaving like a currency, is: "because it is not a currency yet", then that's not very convincing as an argument of why it is a good currency, no ? In fact, the deflationary spiral is even worse for a non-essential asset, because in as much as the deflationary spiral of the principal currency is tempered because after all, you HAVE TO BUY FOOD, here, nothing stops one from hoarding all of bitcoin, because you don't have to spend it to get food.
Well I guess the conventional view of bitcoin is that it's an asset and a currency, right?
Furthermore, there is an increasing number of goods and services that can ONLY be purchased using bitcoin.
Apart from ransomware and dark markets, I wonder what ?
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Yes, these are the primary uses for bitcoin as a currency right now, but the utility of bitcoin applies to global commerce as a whole. With 3 countries outright legalizing bitcoin, I suspect the number available goods and services to skyrocket.
Pure speculation is. And I think it has a monstrously bright future in that.
Pure speculation sounds like an oxymoron to me... and it's not why I'm here. But the space could degenerate to only speculation. And I think that would be the logical conclusion of the experiment...