So your government tried to do excessive lending in a deflationary economy, and got burned. Why is anyone surprised?
Goverment tried to deflate the economy, the technical term they used was "Internal devaluation", and got burned.Internal Devaluation is functionally the same thing as inflation. I.e. opposite of deflation.
I recall the advice that if you dont have your bitcoins in your wallet, they are not your own. Why would anyone want to keep his bitcoins in a Bank?
In case of investment, banks can manage inestments, including looking for good places to invest, and making sure what is owed is paid back to them, much better than individuals. Regarding security, having all your welath at home. if you have a lot of it, is not very safe, since it opens you up to robbery and torture to try to get you to reveal your password. Banks in the future may use a multi-signature system, where they only keep one of the signatures required to spend your bitcoin, and block any transactions that are over the daily limit or that they deem suspicious, without your consent. It's a lot harder to steal money from you when it requires taking you into a secured building with armed guards, just to get the second half of your password.
So what we are only left is Investment Brokers : Investment Banks, Hedge Funds : The reason we are in this mess.
The specific reason we are in this mess is because investment manbs and savings banks were one and the same. People were putting money into savings, thinking their money was safe and will not be used for extremely risky investments, but banks used it for that, anyway. This meant that people essentially gambled their money on high risk investments without being told about it, and had to be bailed out, otherwise they would have lost all their savings. With bitcoin we can decouple savings and investments, where investment banks and hedge funds will be specifically that, and anyone putting money into those will know that there are risks.
Not that I disagree that the fusion of Savings Bank with Investment Banks is a root cause.
Paul Penfield on an MIT opencourse in is series about Entropy&Information discuses about it don't have a link right now.
But if people need security I am sure there will be services that provide just that. (Not a Bank)
People will only go to a Bank to collect Interest, no Interest no Savings Bank, but will Banks be able to provide that or will they have Negative interest rates as FED is planing to? No Fractional Reserve -> No loans -> No Interest
So in my mind Saving Bank is a Non Entity, and that will mean that a lot of people (and capital) will be out of investment options
in private stashes.
Now on Investment Banks, which will capture only a handfull of capital, it will be risky bussiness.
My guess is that there will be many high profile scandals that will discredit and scare people away from banks,
sepecially if it is so easy to just Hodl and gain value.
Is there any recorded case of anyone lending out bitcoins? even as we speak, with bitcoin being currently inflating?
Food is even more of a JIT thing that IT. IT takes years to develop (build new manufacturing plants), and takes months to become obsolete, while food takes months to grow, and spoils within weeks.
Ok you are obviously detached from the food industry...Possibly. I admit I don't have much experience in those businesses...
Trees, Vines, Livestock. you know waiting things to grow... Unless your plan is to only eat bread and noodles...
What about them? They are goods that have a very strong demand, so you can ask for higher price when they have actually finished growing. (remember, if deflation is fairly constant, everyone can plan for it and adjust prices accordingly)
Farmers have a hard time even now, there are many risks that cannot be factored in the upfront investment to ensure timely returns, Oil and weather screw farmers systematicaly and increasingly, water is about to kick in (as real cost) as well as seeds. One would thought that Farmers beeing closer to the self-production model,positive "trade balance" making them winners in a deflative economy, but that would mean reverting to non-industrial farming, which cannot feed us all.
Not to talk about efficiency even, JIT means that you constanly flush the pipelines, I guess you know what that means...
It means you keep as little inventory as possible, and thus as less debt as possible. You only spend (or borrow) for the couple of items you were asked to produce, and pay back the loan in full almost right away, since you don't have anything sitting around.
Production delays -> Cost,Risk -> Cost,Cost,
Less efficiency -> Less machine utilization -> Less capital utilization -> Cost
To balance those costs you have to shrink.
If not ask a fabric manufacturer this question "Do you shut down machines for repairs if your product has faults?" take a wild guess at the answer.
Yes they do? What's your point? You don't take out loans on products that don't exist because you are not producing them.
So by introducing any kind of delay (say one provider failed to provide on time, without buffers) you push ROI away.
Having said that and going back to the stock problem, bussiness already keep the lowest stock possible (there are still costs to maintain a stock) Problem is that because of higher risk now, involved by a provider failing to provide on time, you need to stock *more* at higher cost.
What Incentive is there to JIT produce now rather than wait a day and screw the customers over?
A few. If you borrowed money to produce, your loan is getting more expensive to pay back. If you already produced the components that go into the final product, you don't want them sitting around losing value. And finally, if you don't produce now, your competitors will.
You cant borrow money
Why not? You can borrow, you just have to make sure whatever you are adding to the economy has greater value than the money deflation.
You will not have already produced/stocked/procured/preordered/repayed the said components
Why not?
You have a contract/advance they cant go to competitors
Your competitors don't have to go to you, they can use other producers. If you produce for WalMart, they have a contract with you, and they decide to sit and do nothing, Target and Amazon won't care about your contract, and will get products from their own producers, screwing both WalMart and you. It would be stupid to sign a contract that lets your business customer sit around and do nothing while preventing you from selling to someone else.
It will be an environvent with too much entropy, the players will start rely on increasingly fewer providers (insourcing production).
It well may end like Japan, with large Vertical "Corpotations" actually more like Feuds, btw is japan's economy in truth deflative? is Japan's Model stable in isolation?
The economy is not a planar graph to distribute the risk evenly accross the chain, It contains cycles, in that model all those cycles will be negative loops and phased out one by one until everyone is disconnected and becoming a single node of Producer-Consumer or a Planar graph with one way flow of capital : Mercantilism, expect peace to ensue
Your assumption is that goods flow from A -> B accross a chain right? so you can hedge amortize or whatever the risk, deflation etc
the problem with chains is you know "the strength of the chain ...."
What happens if nodes accross that chain start to fail on deliveries, how can that happen?
Lets just say that a Coal provider needs a constant supply of steel machinery, A Steel Provider needs a constant supply of coal, without stocking up resources, not mentioning workforce here, they will quickly be deadlocked waiting for some external energy (money) to kickstart them. So In order to get a just a single steel pin, you have everytime to pay upfront the cost of kickstarting the whole coal-steel industry.
In simple words economies of scale rely on full Buffers, which you have just made uneconomic to maintain.
Contracts for delivery? Basically internal barter exchange, I give you so much steel, you give me so much coal. Besides, there will still be lending in a deflationary economy. It will just be shorter term, and for products that produce good economic value. So there will still be a buffer, but it will just be smaller.
Debt related, Deflation inducing.
To sum up we agree that Greece is in Deflation ok?
To sum up we agree that Greece is in Deflation ok?
Sure. The big difference in the disagreement is that you seem to be saying that deflation is causing the economic woes, and I am saying that economic woes, which were due to government failures and debt, caused deflation.
If there was no deflation, if Greece was free to print their own money as much as they wanted to stave off their economic problems, you wouldn't have a better economy. You would, in fact, have the exact same issues that Argentina and Venezuela are having now, with severe inflation, wages becoming nearly worthless, and a more authoritarian government implementing severe capital controls that prevent you from taking out too much money, moving money across borders, and likely 25% import taxes on anything you buy online.
Nevermind it's a spiral... deflation -> lower GPD -> Higher Debt/GPD ratio -> More austerity -> deflation
It's seems that once you are in this hole you can't dig yourself up again, you need external help, you need a Marshal Plan...
If ECB printed greece out of trouble, it would had minimal effect on Euro inflation, but I guess it would set a dangerous precedence,
and protestant thinking would not accept it selfrighteous bastards they are
, Fuck the citizens so they fuck their govermentOn the other hand if we were a State in US, I bet FED would had done just that, and fuck the goverment directly afterwards.
If we had our own currency I don't think we would be in this mess, we would had a more sustainable and consolidated growth.
Argentina and Venezuela were always under the shadow control of US, I tend to blame US policy (over the years) for that mess over there.
With deflation everyone gets lazy and postpones to the future, ventures, investments, cunsumption. Do you find that healthy for the labour market?
Deflation (price deflation) is economic growth being higher than the money supply. Less money to go around in a growing economy, more deflation. So if everyone was beng lazy and postponing the future, there would be no deflation, because there would be no growing economy to cause it. Deflation, or rather fixed money supply, at most pots a damper on economy, making it grow at a normal pace, instead of debt-inflated artificial pace.
Why hire personel NOW, when you can hire personel when you get an order even a preorder/advance, why consume now but when you get a job?
That's no different from how things are now. You don't hire people to sit around and do nothing, regardless of whethere there's inflation or deflation. So you hire someone now, if someone else needs your product now.
in a deflation Bussinesses hire staff in time in order to produce what the customer asked them.
Also Staff is propably underqualified because who would invest in education?
The poor... Ah the poor will start to mine bitcoins! oh wait they dont have asics bummer. They cant even afford power as power is now *based* on bitcoin's value, there is not enough anyway... BTC miners eat it all up....
Why would the poor mine bitcoin? The poor don't own cash printing presses, either.
I think you misunderstood. I only implied that the poor will be able to save for the future, and actually have their savings add up to something.
Inflation means the poor net worth will be continuously going negative, as they are incentivised to continue borrowing to live (especially if inflationary wages keep loosing value and they don't get raises), while deflation means the poor net worth will be continuously going positive, since they'll be incentivized to save before spending. Did you know that if your net worth is $1, you are richer than most people in 1st world?
The poor will/need to raise their standard of living first, save second. Inflation/Deflation doesnot touch them, They don't give a fuck about bank accounts. All the poor care about is Jobs.Also, FYI, favelas aren't the result of a free market or a deflationary economy. On the contrary, Brazil has both regulatory and corruption issues, AND money issues.
there is local corruption, there is imported corruption, and there is exported corruption,
Latin america suffered hard from US imported corruption, at first due to Cold war, later for economic reasons.
Africa likewise by Europe.
You know USD is not backed up by gold, or guns as Krugman says, it is backed up by Oil.
EDIT: apologies of quoting mayhem