Cut wages by half = you earn half as much, things cost twice your wage to buy.
2x inflation = you earn half as much, things cost same as your wage

Crap, you're right, Internal Devaluation sucks way worse



The original purpose of a bank was to provide security. I just meant that we will have "banks" go back to doing their original function, which is to provide security.


Since bitcoin is already deflationary, there is no need for a savings account that pays a little interest. Investment Banks will be the only reason to actually invest for an interest return. So, people themselves will be the private stashes, looking to invest money directly, or will have a large stash that they will give their investment bank authority to invest for them. We'll go from many people with small amounts of money funding "savings" accounts, to few people with large amounts. I haven't bothered to consider the implications yet.


I would hope that would be the case. Only people who know what they are doing, and have a personal vested interest in what's going on, should be investing. Imagine what the 2008 derivative market would have been if everyone actually questioned their bank about what it was doing with their money. Chances are such a market would have never materialized, or would at least have been properly insured.



BTCJam has been doing it for over a year now. There were (and probably still are) tons of personal lending in this forum's lending section.



You're right, this may be a problem, but I think that it will actually push farming into more industrial rather than less. A large corporation will be able to track sales and demands, and handle risks, much better than small individual farmers. I guess things with long-term investment, like olives, will become way more expensive. At least for those newly planted. However, since we already have many things planted, and are transitioning from inflationary to deflationary economy, those olives, farms, and other produce is already there, and already producing every year. A new olive tree added to sustain the orchard will just be a cost of continuing to do business. (entrenched old money?)


That's one option. The other is to diversify the risk by having multiple contracts with multiple smaller producers. I think that will be a cheaper and better option than to stock more, especially in a deflationary economy. Makes me wonder if inflationary economy is what pushed for large stocking to begin with.



A loan assisted deflationary economy can exist, but a loan driven can not, you are right. I think we are living in the results of loan driven economies, with countries and everyone else all straining under enormous debt. I don't know if that's a better alternative than a smaller economy not entirely propped up by debt. You can still be driven by prospect, though. You just have to be sure that your prospects will provide a higher return than the deflation rate. So yes, there will be less people taking extreme risks on new ideas.


I, unfortunatey, have not studied Japan's recent economic situation as much as I should have, so can't comment. With regards to entropy and insourcing, maybe. Maybe we will have a lot of diversification, too, with much more reliance on production being kept to higher standards. Then there's the whole 3D printing thing on the horizon that may change business dynamics entirely...


Heh, good point. Another option is to add discounting to the future purchase at the rate of deflation (somewhat being done now already). I have a contract where you will provide me a ton of steel 30 days from now for $1,000. If you take 45 days, I will only pay you $900. Pretty much the opposite of I sent you $1,000 worth of steel, and you have 30 days to repay me, or will repay $1,100 if you pay in 45 days. Though I guess this will delay production considerably in a JIT system, and would mainly work with established production flow.

A lot of how our economy functions will have to change, though if the rate of deflation is only 1% to 3%, it may not have to be by much.


I see it as the steps by which a debt-based economy inevitably unwinds itself as it finds itself no longer able to borrow. Greece should be a warning to all the other countries who are rapidly getting to the point where they can't print and borrow any more to sustain themselves.


Or you wait until you get to the actual economic rate of your country, not one propped up by debt, and start from there. Iceland had similar issues, and somewhat cut their suffering short by repudiating their debt, and starting over with much more strict limits on government borrowing and austerity. It has worked fairly well for them, even if a lot of people lost out on the debt. Countries with close knit communities and families will be able to survive this much better than countries with "rugged individualism" (looking at you, USA).


That's somewhat what has actually been happeming. The FED is inflating like crazy, and the cities and counties that ended up with too much debt are getting fucked directly by having their governments replaced with state appointed unelected "emergency" leaders, who's job is typically to sell off everything the towns had and GTFO before the locals get too restless.


If Greece kept borrowing and paying out in austerity more than it received from taxes or generated economicaly, you would have a more sustainable growth right up to the point where your borrowing matched your interest payments, at which point no one would lend you any more, and you would either have to hyperinflate, or be in the same situation you are in now. You can't have economic growth without the actual underlying economy. If you are growing through inflation and debt, someone, somewhere, will have to pay for that everntually


They are quite socialist, which is quite different from what US policy claims to promote. Maybe US meddling caused them to rebel and pushed them further into socialism?


Yeah, that's kind of the point I was making. Growth in an economy, or more specifically investment growth, is limited by the highest interest return of the lowest risk asset. It doesn't really matter what it is. If bitcoin is not that asset, but, say, oil will give you the highest return for the lowest risk, then people would only invest in businesses that provide a higher return than oil does. Oil would end up being that deflectory wall that bounces the economy back. The problem with inflationary dollars is that they provide a very low wall, but at the expense of future debt. So the deflectory bounce back is basically being pushed further and further into the future, until it can't be sustained or paid for any more.
Honestly, I'm too distracted to juggle all the economic variables in my head right now, with regards to the effects of this on inflationary and deflationary economies, so I'll leave that up to you.


Not if the product has a chance of providing higher returns than the deflationary currency. Our tech sector operates under the threat of their investments becoming worthless due to competitors and obsolescence all the time.


The staff themselves, I hope. Not through loans, but by paying their way through education.


If credit cards are not available to them, they won't have much of a choice.


I believe part of what keeps the poor poor is debt. Credit cards, dependence on social programs, etc. Inflation also makes their wages constantly depreciate. Under deflation, they would get an automatic slow growth in income. Plus, if they want anything like a TV, they would have to save for it, too. China has a lot of poor people, almost no social programs, and a huge culture of savings, even among the very poor, because they know there won't be anyone to come save them if they get in trouble. This also leads to more closely knit communities with interdependence. I think that is better than what we have now, with everyone being very individualistic, with little empathy for others.


Which, again, is why I'm an anarcho-capitalist. Remove the power of the state to give handouts, and there won't be a reasin for firms to bribe officials.


Likewise

BTW, very impressed that you know so much at such a high level of understanding. It's refreshing to be so challanged and be forced to think so hard in a debate (especially on this forum )