Quote from: deisik on November 30, 2013, 07:26:54 PM

Quote from: Imahara on November 30, 2013, 07:11:29 PM

When I am saying people will hold on to their money now and spend it later, that can be interpreted as lowering the velocity now, and increasing it later. Then you will understand that that is consistent with a stable price level and an increasing quantity of goods.

There can no longer be "later" you refer to... If you don't buy today, the producer just won't sell tomorrow, because he will have to cut production and fire his staff... Is it really so hard to grasp?

Just because there is a fixed supply of bitcoin, that does not mean prices will have to keep going down.

No price can consistently and predictably move more than 'the' risk free rate of return, simply because that would provide a risk free profit that the market would adjust for. Bitcoin worth more in the future? I buy now and keep buying until the expectation of a further price rise is gone. Lowering today's prices of goods in terms of bitcoin and raising future ones in the process. The coins I bought I will spend tomorrow.

The Fisher equation isn't so bad after all in showing what is happening. MV=PQ, the supply of Money times its Velocity equals the Price times the Quantity of goods. We know M is fixed and Q is growing constantly. When we wrongly assume V to be a constant (as is often instructed) then the Price level would have to accommodate for the increase in quantity Q by going down. Deflation as some say.

But as I have shown, P can't move predictably without affecting people's decisions on postponing to spend. A predictable price drop tomorrow will cause less coins chasing after goods today (we are hoarding) and more coins thrown around tomorrow (we will spend). What happens is that today's Price level will lower and tomorrows Price level will go up, equalizing the price difference to within limits of the risk free rate where it can persist.

This effect of hoarding is exactly what Velocity of money means to say. Because of the fixed supply of coins and the growing economy, we can expect Bitcoins to be hoarded. The velocity of bitcoin is lower now than it will be tomorrow. The price level on the other hand will be stable within bounds. (Not keeping into account other demand fluctuations)

The problem I have with the Fisher equation is that it seems to describe money using independent variables. As you can see P and V are linked, so you cannot determine the change in a one of these two variables when you know the change in the other. There will be second order effects. In this case, a change in P will lead to a change in V now, which in return will reduce the change in P...

Economics, not an art...