What Is Inflation and Deflation and a Speculation About the Bitcoin Future

We just started investing in bitcoins and I’ve read a great deal of discusses inflation and decrease but is not many people actually know and consider what inflation and deflation are. But let’s start with inflation. [ BitcoInvest.cc ]

We always needed a way to control value and the most useful way to do it is to web page link it with money. Before it worked quite well because the money that was issued was connected to gold. So every central bank required enough gold to pay back again all the money it issued. Nevertheless , in the past century this transformed and gold is not what is giving value to money but pledges. Since you can guess it’s very easy to abuse to such power and certainly the major banks are not renouncing to do so. Because of this they are printing money, so in other words they are “creating wealth” out of thin air without really having it. This method not only exposes us to risks of monetary break but it results as well as the de-valuation of money. Consequently, because money is worth less, whoever is selling something has to raise the price of products to reflect their real value, this is called inflation. But what’s lurking behind the amount of money printing? Why are central banks doing this? Very well the answer they would offer you is that by de-valuing their currency they are helping the exports.

Found in fairness, within our global overall economy this is true. Nevertheless , that is not the only reason. By giving fresh money we can afford to pay backside the debts we got, in other words we make new debts to pay the old ones. But which is not only it, by de-valuing our currencies we are de-facto de-valuing our bills. That’s why our countries love inflation. In inflationary environments it’s better to increase because debts are cheap. But what are the consequences of all this? It’s hard to store wealth. So if you maintain the money (you worked well hard to get) in your money you are actually losing wealth because your money is de-valuing pretty quickly.

Because each central bank has an inflation target at around 2% we can well admit keeping money costs many of us at least 2% per year. This attempts savers and spur utilizes. This is the way our economies are working, based upon inflation and debts.

Think about deflation? Well this is exactly the contrary of inflation and it is the greatest nightmare for our banks, let’s see why. Basically, we certainly have decrease when overall the costs of goods fall. This would be caused by an increase of value pounds. First of all, it would hurt spending as consumers will be incentivised to save money because their value will increase overtime. However merchants will be under frequent pressure. They will need to sell their goods quick otherwise they will lose money as the price they will charge for his or her services will drop after some time. But if there is something we learned in these years is that banks and governments do not care much about consumers or merchants, what they care the most is DEBT!!. In a deflationary environment debt will become a real burden as it will only get bigger with time. Mainly because our economies depend on debts you can imagine what will be the implications of deflation.

In like manner sum up, inflation is growth friendly but is based on debt. Therefore the future generations can pay our debt. Deflation one the other side of the piece hand makes growth harder but it implies that future generations won’t have much debt to pay (in such context it would be possible to afford slow growth).

FINE so how all this fits with bitcoins?

Good, bitcoins are created to be an alternative for money and be both a store of value and a mean for trading goods. They are limited in number and we will never have more than 21 mil bitcoins around. Therefore they are designed to be deflationary. Now we have all seen what the consequences of deflation are. However, in a bitcoin-based future it would nevertheless be possible for businesses to thrive. The way to go will be to switch from a debt-based economy to a share-based economy. Actually because contracting debts in bitcoins would be expensive business can still obtain the capital they need by giving shares of their company. This could be a fascinating alternative as it will offer many investment opportunities and the wealth made will be distributed more evenly among people. Nevertheless, just for clarity, I actually have to say that part of the costs of borrowing capital will be reduced under bitcoins because the fees would be extremely low and there won’t be intermediaries between transactions (banks copy people off, both credit seekers and lenders). This would buffer a number of the negative sides of deflation. However, bitcoins will face many problems unfortunately, as government authorities still need fiat money to pay back the large debts that we inherited from the previous generations.

We just started investing in bitcoins and I’ve read a great deal of discusses inflation and decrease but is not many people actually know and consider what inflation and deflation are. But let’s start with inflation.

We always needed a way to control value and the most useful way to do it is to web page link it with money. Before it worked quite well because the money that was issued was connected to gold. So every central bank required enough gold to pay back again all the money it issued. Nevertheless , in the past century this transformed and gold is not what is giving value to money but pledges. Since you can guess it’s very easy to abuse to such power and certainly the major banks are not renouncing to do so. Because of this they are printing money, so in other words they are “creating wealth” out of thin air without really having it. This method not only exposes us to risks of monetary break but it results as well as the de-valuation of money. Consequently, because money is worth less, whoever is selling something has to raise the price of products to reflect their real value, this is called inflation. But what’s lurking behind the amount of money printing? Why are central banks doing this? Very well the answer they would offer you is that by de-valuing their currency they are helping the exports.

Found in fairness, within our global overall economy this is true. Nevertheless , that is not the only reason. By giving fresh money we can afford to pay backside the debts we got, in other words we make new debts to pay the old ones. But which is not only it, by de-valuing our currencies we are de-facto de-valuing our bills. That’s why our countries love inflation. In inflationary environments it’s better to increase because debts are cheap. But what are the consequences of all this? It’s hard to store wealth. So if you maintain the money (you worked well hard to get) in your money you are actually losing wealth because your money is de-valuing pretty quickly.

Because each central bank has an inflation target at around 2% we can well admit keeping money costs many of us at least 2% per year. This attempts savers and spur utilizes. This is the way our economies are working, based upon inflation and debts.

Think about deflation? Well this is exactly the contrary of inflation and it is the greatest nightmare for our banks, let’s see why. Basically, we certainly have decrease when overall the costs of goods fall. This would be caused by an increase of value pounds. First of all, it would hurt spending as consumers will be incentivised to save money because their value will increase overtime. However merchants will be under frequent pressure. They will need to sell their goods quick otherwise they will lose money as the price they will charge for his or her services will drop after some time. But if there is something we learned in these years is that banks and governments do not care much about consumers or merchants, what they care the most is DEBT!!. In a deflationary environment debt will become a real burden as it will only get bigger with time. Mainly because our economies depend on debts you can imagine what will be the implications of deflation.

In like manner sum up, inflation is growth friendly but is based on debt. Therefore the future generations can pay our debt. Deflation one the other side of the piece hand makes growth harder but it implies that future generations won’t have much debt to pay (in such context it would be possible to afford slow growth).

FINE so how all this fits with bitcoins?

Good, bitcoins are created to be an alternative for money and be both a store of value and a mean for trading goods. They are limited in number and we will never have more than 21 mil bitcoins around. Therefore they are designed to be deflationary. Now we have all seen what the consequences of deflation are. However, in a bitcoin-based future it would nevertheless be possible for businesses to thrive. The way to go will be to switch from a debt-based economy to a share-based economy. Actually because contracting debts in bitcoins would be expensive business can still obtain the capital they need by giving shares of their company. This could be a fascinating alternative as it will offer many investment opportunities and the wealth made will be distributed more evenly among people. Nevertheless, just for clarity, I actually have to say that part of the costs of borrowing capital will be reduced under bitcoins because the fees would be extremely low and there won’t be intermediaries between transactions (banks copy people off, both credit seekers and lenders). This would buffer a number of the negative sides of deflation. However, bitcoins will face many problems unfortunately, as government authorities still need fiat money to pay back the large debts that we inherited from the previous generations.

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