Quote from: bitchess on April 28, 2013, 01:30:06 AM

Quote from: Rodyland on April 28, 2013, 01:14:50 AM

Quote from: bitchess on April 28, 2013, 12:53:26 AM

can we look at the past periods of deflation?

http://en.wikipedia.org/wiki/Deflation#Effects

"Deflation was present during most economic depressions in US history[22] Deflation is generally regarded negatively, as it causes a transfer of wealth from borrowers and holders of illiquid assets, to the benefit of savers and of holders of liquid assets and currency, and because confused pricing signals[citation needed] cause malinvestment, in the form of under-investment."

I'm not saying deflation doesn't benefit savers at the expense of borrowers. It does, just like inflation benefits borrowers at the expense of savers. And just like deflation causes malinvestment, so does inflation. Your arguments here hold no water.

What I'm saying is that the deflation => deflationary spiral => the end of the world is not a given in a monetary system that isn't debt backed. In a debt-backed monetary system that is totally the case, and we all know why.

I guess the disconnect here is the cause of deflation. In a static monetary system, the level of deflation would be relatively close to the level of growth. More goods and services chasing the same amount of money. However in a debt-backed system, deflation causes a contraction in the money supply, so you've got more goods and services chasing a shrinking money supply - a double whammy, if you will.

I find it curious that you have never once addressed my assertion that the money system not being debt backed means that its fundamental behaviour, especially in the face of deflation, at least _could_ be different. Despite my constant assertions that this difference is the reason for my differing opinions. Which makes me think you're not really interested in an argument or a discussion, merely in spouting the same old Keynesian/fiat lines that we keep hearing from the likes of Krugman.

Yes, I ignored that point my bad. Let's talk through. Can you explain your definition of debt-backed system? Do you mean fractional reserve system? Why does the double whammy in a debt backed system negate the single whammy of deflation in a non-debt back environment?

Also stable low inflation rates promotes growth. I'll be more likely to buy something today than save to buy it tomorrow. Or I'll invest my cash in goog stock.

I actually think creating a lending system for BTC will adress the deflationary spiral issue

I don't mean fractional reserve. I have no problem with fractional reserve, as long as the fractional nature, and the risks behind it, are made plain and clear to all depositors.

Do a quick google for "debt backed money" and you'll see what I'm saying. Try to weed out the nutters and look for the facts behind it. The vast majority of money in our currency systems are borne from debt - You go to the bank and ask for a loan, and the promise from you to repay that money is all that is needed for the bank to effectively conjure that money into existence.

Even in a monetary system that isn't backed by debt, severe deflation can still cause problems. And what we're seeing in Bitcoin right now is probably some of the most severe deflation (and volatility) that you can imagine in a currency. (And yet people are still doing their level best to make a go of it - interpret that as stupidity or optimism as you prefer).

The reason deflation causes disaster in a debt-backed system is that deflation causes the money supply to shrink, because loans dry up, leading to the deflationary death spiral. In a system where money isn't backed by debt, the drying up of credit doesn't affect the actual supply of money, so you don't have that vicious feedback cycle.

That is the reason central banks try very, very hard to avoid deflation and actually target mild inflation - they know that their monetary system would verge on collapse in the presence of persistent deflation. However they don't publicise the reasons behind, merely trotting out the "deflation is bad" line so often that it's become accepted truth. Problem is, it's become accepted as a universal truth, rather than what it really is - the truth for the current system which they are charged with maintaining.