Who creates that inflation - as they are taking that wealth for themselves … it’s the core of the con-game in modern society.
In the past it was a burden as money was gold/silver and diluting the supply during times of rapid growth was expensive. But we don’t live in that world now because of bitcoin and now other crypto. We can divide infinitely as zero cost.
Liquidity in the market is a matter of access and hence ability for true price to be determined. Once good markets exist, price will reach appropriate value - one that allows enough liquidity.
Cryptocurrencies (edit: and crypto developers) are solving these problems through fixed supply, strong divisibility, and decentralized open markets.
Those closest to to taps benefit from inflation. The first to spend it get it at the undiluted value. Those further down the chain get the diluted value.
To make inflation more equitable, as many people as possible should get to spend the fresh, undiluted money. I’d say this is far from the current reality (for many reasons).
Divisibility isn’t really the issue. It is that savers gain value from deflation even if idle. An economy which rewards idleness isn’t ideal.
A currency which is neutral, neither deflationary or inflationary would be ideal. When demand is growing, inflation - if dispersed evenly - would equalise this.
The money supply shouldn’t punish savers, nor reward a rich minority. If people want to accumulate, they should need to work for it or risk it for reward.
Crypto is unusual in that it is trying to offer an investment angle. To deliver a reward in exchange for the risk. It is also trying to balance a surge in short/medium term demand, vs longer term stability. That’s pretty hard to achieve.
Edit: to add, recent population growth has exploded. In prior millennia, population was relatively stable, which probably meant the money supply could be too.
That’s the Keynesian view, and it’s wrong. The notion of an economic “ideal” here is completely subjective. The Keynesian’s adhere to it as it justifies the current system that the politicians love.
Savings is aided by deflation and savings is the basis for investment into new and better tools and technology. Sure there is less spending and a relative drop in spending would certainly (from where we are now) create chaos in the global economy - but it would be a restructuring into an investment based economy versus a spend and consume economy. Which one is better is a matter of preference.
I contend that modern econ as it is taught in schools is ruled by the Keynesian’s who push their preference. But IMO, if we are to look objectively, we must consider the alternatives. Historically there have been periods of time when there was much less inflation and it’s fairly clear I think that we had good economic growth and good innovation. The periods in history where we had strong deflation we only had gold and silver - which, as I already explained, were heavily burdened by the expense of their dilution.
So if we are going to be fair with our analysis, then we need an experiment where we have strong deflation AND strong divisibility. I believe it would be a paradise. But until the experiment exists, there is no reason to think it would be bad for the economy - whatever that means.
Isn’t it convenient that money printing and global debt and corporate bailouts, basically socialism for the rich has been happening allll this time and now that it is being distributed right into the peoples hands, now it’s useless paper funny money that is being debased and we (people like Elon Musk and Michale Saylor and whomever they convince) need Bitcoin! It’s maddening. To ignore it and not have any is also a bit mad because it’s clearly a narrative they are literally turning into reality but to me it stinks.
I do understand the argument of more printing less valuable etc. It makes sense but it’s just the timing and convenient that when the people that already have all the money make this choice right when the distribution is headed in the right direction.
Well, it is hard to argue that savings should generate value. If I save a pile of goods, I expect the same pile to still be there when I go to retrieve it. I don’t expect new goods to have accumulated - why should I?
Imo, the concept of savings and investment has become conflated. Perhaps this is due to fiat money and banking also becoming entwined too.
Investment carries risk of loss, due to the investment not returning as expected. Savings, if well secured, should always be returned in full.
I’m all for folks investing or saving. Expecting passive returns, risk free, from ‘savings’ is an odd thing though.
Maybe because of gains in productivity? If other goods become easier to produce/cheaper relative to the hard asset you saved in, then you can trade for more things. I guess that’s where Gresham’s Law comes from.
It’s not an odd thing. You are doing the banks a favor. If you put $10,000 in a bank, they take $9,000 of it and give it to someone else for a car loan, mortgage, or whatever. The banks are making money on your money, so it’s only fair you get a small piece of that pie for helping them out.
This is a common misconception based on how things used to work, but it is no longer the case. Loans are created electronically by commercial banks, who are typically regulated by a central bank that determines how much and what kind of assets they must hold. Savings will be a part of those assets, but I think much more is from other sources and many assets are in effect the loan the debt they own from lending.
So when a bank gives you a loan it creates a debt account, which has a negative balance until you pay it off, and adds the amount of the loan to your current account. Nobody’s savings were involved. The bank is only required to kept its overall assets (debts owed to it, savings deposits which are in effect debts it is to savers, etc) within certain limits. But in no way is it lending out less than savers have deposited, it issues loans many times more than this.
And that is the main way the money in the economy is created, a number is added to one account and removed from another.
The reason governments can run up huge debts they never have to repay is because they effectively own the central bank, and use the same trick when they want to spend money. They tell the bank to give them the loan, the bank gives them the money, which is used to buy services, build roads etc. And the central bank holds the debt which we are constantly told (in UK) the government has to repay, “to balance the books”. Strangely, this has never happened! Because as it owns the bank it doesn’t have to repay it. Hence government debt is very different to personal debt, credit cards etc, which of course we do have to repay.
Governments today have complete freedom to spend more or less, regardless of taxation, to run up debt, repay it or not. Taxation is more about control, an economic and public relations lever, than raising money for government spending or to repay government debt.
There’s little need for taxes at all, except in trying to affect distribution of income and wealth, and guess who ends up paying the highest amount of their income and wealth in taxes! It’s a rigged system.
The fantasy that “there is no magic money tree” is now much more widely recognised as the lie it has been for decades (since the end of the gold standard), used by governments who wish to keep government small for ideological or reputational reasons, and most importantly to keep wealth with the rich who maintain this control. It is nothing to do with being a financial necessity.
Banks can only lend out 90% of the assets they hold. Yes, it is all just numbers in a database somewhere instead of a physical transfer of money, but they are still doing the same thing. If you give them $10K, it allows them to loan out $9K they couldn’t loan before.
It’s the entire basis of fractional reserve banking.
Which is why the banks get bailed out, too big to fail, money printing, etc, are going in. Investments cannot be guaranteed, as loans may get defaulted on.
Here is a rule of thumb - if you pay someone to keep your money safe, it is savings. If someone pays you if you give them your money, it is investing. Forget the naming games they play.
That’s what most people believe but it’s not the case. You can find the information to refute this in the website of The Bank of England, and no doubt many other places. The central bank does set limits as I noted, but the amount a bank is permitted to lend is many times higher than the amount of savings and other deposits held.
That’s a complicated economic waterfall of how money is created by a series of loans and debt accounting. But it still comes back to the fact that if you put your money in savings, banks can loan out more money. In normal (non pandemic) times when there is a reserve requirement, if everyone took their money out of savings at once, banks could not loan out more money, because they wouldn’t have the assets to cover it.
True. Because of the pandemic, most governments around the world removed this requirement. The assumption is it will be put back in place by the end of 2021. We’ll see what happens.
If everyone tries to withdraw their savings, what actually happens is that government provides the banks with additional money (called a bailout), so they can continue lending.
I get that we have been told that it is our savings being loaned out, which is important to maintain the fiction I described earlier about governments not being able to spend money they don’t have (when in practice they can and do routinely). There are restrictions on private bank lending, but they are way beyond the levels of bank deposits.
Reserves are part of the restrictions, and have a knock on effect on lending but not much. Reserves set the amount of cash a bank retains - doesn’t loan out - of deposited funds. But if these become insufficient to cover withdrawals the government has a choice - bankrupt the bank and numerous customers, ruining confidence triggering more bank runs and economic collapse, or guess what: pour money in (from thin air) allowing banks to repay depositors until they can acquire enough deposits to rebalance, and can afford to repay the government.
As announced on March 15, 2020, the Board reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions.
