Inflation Scaremongering

PVW said:

I was primarily responding to the bitcoin bit, as bitcoin is by design a deflationary currency. Luckily for bitcoin, it has never actually succeeded in becoming a currency and is instead an asset -- it's a "currency" that allows people to transfer money in the same way luxury apartments in NYC and London are "currencies" for Russian oligarchs. Bitcoin's value rides on the fact that at the end of the day one has to trade it in for actual, inflationary currencies.

But as to your claim that you've never experienced deflation, that's actually not true -- we all did during the 2008 financial crisis.

Im actually not a bitcoin person, I just think the image is amusing. And $BTC most certainly has not proven its mettle as an inflation hedge, being down about 40% over the past 3 months as inflation picked up steam.

As far as deflation, I guess technically there was deflation in 2008-09, but it was way too short-lived and narrow to count as a material event IMO. I remember the Maple Leaf Diner cut its front-window price on breakfast, and of course the housing bubble lost air, but for the most part I don't think the average person felt any impact from deflation.   


PVW said:

I was primarily responding to the bitcoin bit, as bitcoin is by design a deflationary currency. Luckily for bitcoin, it has never actually succeeded in becoming a currency and is instead an asset -- it's a "currency" that allows people to transfer money in the same way luxury apartments in NYC and London are "currencies" for Russian oligarchs. Bitcoin's value rides on the fact that at the end of the day one has to trade it in for actual, inflationary currencies.

Not quite true anymore. It started with El Salvador and there are countries that are considering making it legal tender.

https://www.yahoo.com/video/countries-may-next-accept-bitcoin-120030865.html#:~:text=One%20of%20the%20main%20knocks,accept%20Bitcoin%20as%20legal%20tender.

I've been studying it as a means of helping people save the high fees they used to have to pay to services like Western Union to send money. That is a problem for people who want to send remittances cross border to family & friends, say in South & Central America. Using a service like the Lightning network or just transferring it from one wallet to another is a way to save fees. Now that there are alternatives to the Ethereum ERC-20 network (and its high gas fees) like Polygon, Cardano and others some people will benefit from being able to use other alt coins as stores of value and commerce. In these cases, they would still have to convert it to fiat if they wanted to spend it where crypto isn't legal tender.

As for the deflationary properties, yeah, it is happening when people lose access to the coins they hold if they no longer have their keys or have some other sort of event that keeps them from ever getting access again. Sometimes coins are also burned by other errors. That is all complicated by the fact that BTC has not yet overcome the volatility it is known for. Its value can swing up or down by upwards of 10% on a given day. WHAT??? But almost anyone who has held it for any length of time has seen the value of their holdings increase by huge amounts since 2009. But that volatility. Mm mmm mmmmmm. It went up to the mid-$60K range in May only to sink into the $30Ks over the summer and then back up to almost $70K in November. And uhhhh, now it is wobbling around $40K. 

It is being used for more than a digital store of value but the industry is still young. Anyway, carry on with the real point of this thread.


PeterWick said:

Not quite true anymore. It started with El Salvador and there are countries that are considering making it legal tender.

https://www.yahoo.com/video/countries-may-next-accept-bitcoin-120030865.html#:~:text=One%20of%20the%20main%20knocks,accept%20Bitcoin%20as%20legal%20tender.

I've been studying it as a means of helping people save the high fees they used to have to pay to services like Western Union to send money. That is a problem for people who want to send remittances cross border to family & friends, say in South & Central America. Using a service like the Lightning network or just transferring it from one wallet to another is a way to save fees. Now that there are alternatives to the Ethereum ERC-20 network (and its high gas fees) like Polygon, Cardano and others some people will benefit from being able to use other alt coins as stores of value and commerce. In these cases, they would still have to convert it to fiat if they wanted to spend it where crypto isn't legal tender.

As for the deflationary properties, yeah, it is happening when people lose access to the coins they hold if they no longer have their keys or have some other sort of event that keeps them from ever getting access again. Sometimes coins are also burned by other errors. That is all complicated by the fact that BTC has not yet overcome the volatility it is known for. Its value can swing up or down by upwards of 10% on a given day. WHAT??? But almost anyone who has held it for any length of time has seen the value of their holdings increase by huge amounts since 2009. But that volatility. Mm mmm mmmmmm. It went up to the mid-$60K range in May only to sink into the $30Ks over the summer and then back up to almost $70K in November. And uhhhh, now it is wobbling around $40K. 

It is being used for more than a digital store of value but the industry is still young. Anyway, carry on with the real point of this thread.

I think that volatility is precisely because it's not actually a currency. The supply of bitcoin is fixed. IIUC, that's kind of the point, to make it non-inflationary. Since the supply is known, and fixed, then you can never add more and so its value can't decrease.

But clearly, sometimes its value does decrease. Sometimes it increases. It's volatile. Why? Because no one actually wants bitcoin, they want dollars or euros or yen, and the amount of those isn't fixed.

The El Salvador experiment is interesting, because of course the final reason a dollar or yen or euro is worth something is because you pay taxes in it (yes, going MMT with this. Also, been reading "Debt: The First 5000 years"). But El Salvador's a small, poor country, so I'm not sure that really moves the needle much -- who cares what the government of El Salvador accepts for their taxes? Or put it another way, how many people are looking to grab Salvadoran Colon (SVC)? Not many, which is probably why the idea of experimenting with accepting BTC was appealing in the first place.

Imagine if BTC acutally did succeed in becoming a currency, though. Who'd want it? Would you want to take out a mortgage that got more expensive as time went on, even before compounding interest came into play? If you were a business, would you want to borrow any money in such a currency? No loans, no investment, no growth, no economy.

Having said all that, the other part of bitcoin -- the distributed public ledger part -- I think is really interesting. The problem so far is that anything you can do with a distributed public ledger it seems you can do simpler and cheaper with regular old databases, so thus far it seems like a solution in search of a problem, but it is a pretty neat idea so I think that eventually it will find a use case.


The use of crypto as a means of more cheaply transferring money is interesting too, though that feels more like a loophole that just hasn't been closed yet -- the way for a short time in the late 90s/early 2000s there was lots of free music available online. That era didn't last, and I expect crypto as a hack around transaction fees won't either.


PVW said:

The supply of bitcoin is fixed. IIUC, that's kind of the point, to make it non-inflationary. Since the supply is known, and fixed, then you can never add more and so its value can't decrease.

One Investopedia article (deflation) leads to another (Bitcoin).

https://www.investopedia.com/tech/what-happens-bitcoin-after-21-million-mined/ 


DaveSchmidt said:

One Investopedia article (deflation) leads to another (Bitcoin).

https://www.investopedia.com/tech/what-happens-bitcoin-after-21-million-mined/ 

Yeah, the "fixed" comment threw me too. Because bitcoin mining.


The maximum number of BTC available has yet to be mined. I cannot be sure but I believe that knowledge of the 21 million limit does play into the valuation. There is the amount that is available/liquid on the market, that held in private storage off the exchanges and the amount locked up in staking srrangements - that should be the supply. But since mining puts another BTC out into the market at some time interval it gets fuzzy for me. 

Mining difficulty and the number of exahashes fitting by are only amusing to me at this point. I'm more focused on the technical knowledge & capabilities needed to securely move, exchange and hodl BTC. 

As for the distributed public ledger, the reason it has promise over current databases is that once a block is coded, it cannot be manipulated in one place. A block has to reconcile with the ones before it and then after it and there are multiple units that validate it. That prevents double-spending of money. In terms of non-fungible tokens, that immutable coding not only can validate an image's genuineness and ownership, it can also be used as a more durable recurs of things like passports, ID's, licenses and diplomas, etc. Real estate transactions. 

Digital archives with existing tech are still vulnerable to manipulation and other fuckery. Who would do that? I dunno, I'm not someone who would want to alter ownership or historical data but there are people out there who might. Mistakes can also be made.


I do think the public, immutable history is cool, but I don't think it's yet found a use case where it's clearly superior to existing tech. And I think the reason for that is that a lot of times it's not actually a question of technology at all, since what we're really talking about are social arrangements, and mutability and ambiguity is often a feature rather than a bug in that context.

Let's say you and I have enter into a business deal, sign a contract, and then down the line fall out and one of us sues the other for breach of contract. It goes to court, one of us prevails, judgment is passed -- the loser paying some penalty for instance. Was it because of that written contract? Kind of, but not really -- ultimately that contract only meant something because the judge agreed it did, because we've all agreed that judges can say that and that we'll be bound by that.

Would smart contracts be better? No need for lawyers and judges to get involved, so a bunch of hassle and expense saved, right? Well, maybe. But if one of use disputes the contract terms, we still might end up in court, and if the judge decides that a provision in the smart contract is unenforceable, then it doesn't really matter what's on the block chain.

A lot of the ideological beliefs around blockchain tech have the goal of eliminating the need for trust. Instead of money having value because people trust a central authority, crypto currency will have inherent value. Instead of legal contracts deriving legitimacy from lawyers and judges, the plain and enforeceable meaning of the contract will be directly and immutably encoded in the contract itself. But I don't ultimately think that's actually something people want, nor do I think it's even possible. None of these things has "inherent" value -- money, legal contracts, etc are social objects through and through, and so the project of trying to separate value from social trust is ultimately self-contradicting.

I think that's a big part of what's hampered the growth of cryptocurrency. It's loudest proponents are running around trying to fit it into solution spaces it won't, and never will, fit into, and so probably missing perhaps less appealing but better-fitting use cases.

I suppose what I am is a cypto-skeptic on the idea that it's going to revolutionize finance or law, but an optimist that the tech will eventually find some solid areas of use, complementing rather than displacing existing approaches. For now, though, the space is overrun with ideologues and scammers, so it's difficult to find signal in that noise.

--

Was about to post, but wanted to note one other thing -- it's worth thinking hard about if we really want a lot of things to permanent and immutable. There was an article...I'll see if I can find it again.. noting that such technologies can just as plausibly end up serving centralizing, authoritarian powers. You mentioned passports and other identity documents. A disturbing trend we've seen in this century has been the seeing how technology has actually helped consolidate wealth and power -- think of the rise of surveillance capitalism in democratic societies, or what China's been doing with facial recognition and cameras. Are we sure narrowing the space of ambiguity by putting everything on the blockchain is a step forward?

Smedley said:

Biden blaming Putin for inflation is , uh…a little ridiculous. 

https://www.washingtonpost.com/opinions/2022/03/11/biden-blame-putin-inflation-will-not-work/

you actually linked to Hugh Hewitt?

Other than gas prices, how has Biden blamed Putin for inflation?

It's Hewitt that's a little ridiculous. As he usually is.


Smedley said:

https://thehill.com/homenews/administration/597675-biden-blames-putins-price-hike-for-high-inflation

it's the headline that's ridiculous.  What's actually in the article, not so much:

“Today’s inflation report is a reminder that Americans’ budgets are being stretched by price increases and families are starting to feel the impacts of Putin’s price hike. A large contributor to inflation this month was an increase in gas and energy prices as markets reacted to Putin’s aggressive actions,” Biden said in a statement.

Consumer prices rose 0.8 percent in February and 7.9 percent over the last 12 months, according to data released Thursday by the Labor Department. Rising prices for gasoline, housing and food drove most of February’s inflation spike, the department said.

ml1 said:

it's the headline that's ridiculous. What's actually in the article, not so much:

A statement in which “Putin’s price hike” ends a sentence about household budgets as a whole “being stretched by price increases,” followed by a separate sentence about gas and energy, then another reference to “costs at home.” Sounds to me like a statement that knew what it was doing.

“At the same time, today’s inflation report is a reminder that Americans‘ budgets are being stretched by price increases and families are starting to feel the impacts of Putin’s price hike. A large contributor to inflation this month was an increase in gas and energy prices as markets reacted to Putin’s aggressive actions. As I have said from the start, there will be costs at home as we impose crippling sanctions in response to Putin’s unprovoked war, but Americans can know this: the costs we are imposing on Putin and his cronies are far more devastating than the costs we are facing.”


ml1 said:

Smedley said:

https://thehill.com/homenews/administration/597675-biden-blames-putins-price-hike-for-high-inflation

it's the headline that's ridiculous.  What's actually in the article, not so much:

“Today’s inflation report is a reminder that Americans’ budgets are being stretched by price increases and families are starting to feel the impacts of Putin’s price hike. A large contributor to inflation this month was an increase in gas and energy prices as markets reacted to Putin’s aggressive actions,” Biden said in a statement.

Consumer prices rose 0.8 percent in February and 7.9 percent over the last 12 months, according to data released Thursday by the Labor Department. Rising prices for gasoline, housing and food drove most of February’s inflation spike, the department said.

"families are starting to feel the impacts of Putin’s price hike" is either really ignorant or (much more likely) disingenuous with a capital D. 

Families have been feeling the impact of rising inflation for months. 


Smedley said:

ml1 said:

Smedley said:

https://thehill.com/homenews/administration/597675-biden-blames-putins-price-hike-for-high-inflation

it's the headline that's ridiculous.  What's actually in the article, not so much:

“Today’s inflation report is a reminder that Americans’ budgets are being stretched by price increases and families are starting to feel the impacts of Putin’s price hike. A large contributor to inflation this month was an increase in gas and energy prices as markets reacted to Putin’s aggressive actions,” Biden said in a statement.

Consumer prices rose 0.8 percent in February and 7.9 percent over the last 12 months, according to data released Thursday by the Labor Department. Rising prices for gasoline, housing and food drove most of February’s inflation spike, the department said.

"families are starting to feel the impacts of Putin’s price hike" is either really ignorant or (much more likely) disingenuous with a capital D. 

Families have been feeling the impact of rising inflation for months. 

As usual, you fail to comprehend what you read. Inflation has existed for months, but the specific hike attributed to Putin's catastrophic invasion of Ukraine is just starting to kick in. Please try to think a bit before you bloviate.


Smedley said:

ml1 said:

Smedley said:

https://thehill.com/homenews/administration/597675-biden-blames-putins-price-hike-for-high-inflation

it's the headline that's ridiculous.  What's actually in the article, not so much:

“Today’s inflation report is a reminder that Americans’ budgets are being stretched by price increases and families are starting to feel the impacts of Putin’s price hike. A large contributor to inflation this month was an increase in gas and energy prices as markets reacted to Putin’s aggressive actions,” Biden said in a statement.

Consumer prices rose 0.8 percent in February and 7.9 percent over the last 12 months, according to data released Thursday by the Labor Department. Rising prices for gasoline, housing and food drove most of February’s inflation spike, the department said.

"families are starting to feel the impacts of Putin’s price hike" is either really ignorant or (much more likely) disingenuous with a capital D. 

Families have been feeling the impact of rising inflation for months. 

politicians being disingenuous!  who knew??


A reminder of the impetus for this round of quoting.

drummerboy said:

Other than gas prices, how has Biden blamed Putin for inflation?


ml1 said:

Smedley said:

ml1 said:

Smedley said:

https://thehill.com/homenews/administration/597675-biden-blames-putins-price-hike-for-high-inflation

it's the headline that's ridiculous.  What's actually in the article, not so much:

“Today’s inflation report is a reminder that Americans’ budgets are being stretched by price increases and families are starting to feel the impacts of Putin’s price hike. A large contributor to inflation this month was an increase in gas and energy prices as markets reacted to Putin’s aggressive actions,” Biden said in a statement.

Consumer prices rose 0.8 percent in February and 7.9 percent over the last 12 months, according to data released Thursday by the Labor Department. Rising prices for gasoline, housing and food drove most of February’s inflation spike, the department said.

"families are starting to feel the impacts of Putin’s price hike" is either really ignorant or (much more likely) disingenuous with a capital D. 

Families have been feeling the impact of rising inflation for months. 

politicians being disingenuous!  who knew??

well at least you acknowledge it.


Smedley said:

well at least you acknowledge it.

I'd phrase it more as trying to prep people for gas prices going even higher before they go lower. 


That Biden’s always one step ahead of everyone else.


Smedley said:

That Biden’s always one step ahead of everyone else.

speak for yourself


good piece on inflation, showing that some companies are raising prices simply because they can.

https://mattstoller.substack.com/p/why-are-judges-encouraging-inflation?s=r


In 2008 when oil was $180 per barrel, gas was $4.00 per gallon on average. Now oil is $100 per barrel, gas is over $4.00 per gallon…is this inflation? 


When barrel costs go up, prices go up immediately at the pump. When barrel costs go down, not so much.


From a 2016 Forbes article:

“Because oil is priced daily and gas is weekly, I used the closing price of oil as of the day retail gas prices were released. The following chart illustrates how closely their prices follow each other.”

(More recent charts continuing the pattern can be found online.)


DaveSchmidt said:

From a 2016 Forbes article:

“Because oil is priced daily and gas is weekly, I used the closing price of oil as of the day retail gas prices were released. The following chart illustrates how closely their prices follow each other.”

(More recent charts continuing the pattern can be found online.)

oh yeah?


i feel special that I have my own personal fact checker.


DaveSchmidt said:


(More recent charts continuing the pattern can be found online.)

where? And if so, why didn't you post something newer than 6 years old?


drummerboy said:

where? And if so, why didn't you post something newer than 6 years old?

The resolution from the copy of the St. Louis Fed chart I found, through 2020, was poor. A similar chart, from Megatrends, had the gas price axis labeled in a way that didn’t pass my fact-checking muster.

Don’t let this and the E.U. pandemic funding throw you. You’re still the man to lecture nan about not letting evidence get in the way.


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