16

I'd say that some benefits of Bitcoin and other cryptocurrencies (i.e. "altcoins"), include: Decentralization -- which is advantageous for those who are skeptical of monetary policy, runs on banks, etc. Anonymity, or at least the perception thereof -- with increasingly comprehensive monitoring of transactions (particularly non-cash transactions), those ...


8

Swiss people do shop outside of their border, exactly as you think they should: "Even the Swiss are staying away from their local stores and products—they would rather buy from neighbouring countries and take advantage of the situation. Switzerland is bound by Germany, France and Italy, and most of its big cities are located just at the border. It is ...


6

Yes it can. If debt originates from the banking system, then it potentially has a side effect of money creation. Whether or not money is actually created when a bank loan is made depends on the banking system's regulatory framework, and the lending policies of its banks, and these can vary widely. However if there is net excess of bank lending over bank ...


6

Because money is really just arbitrary numbers, and those numbers only really have any meaning in relation to the other numbers in the set. For example: Average salary is \$50,000 and a entry-level car costs \$10,000. If the price drops by \$5,000, it's well known that sales will go up, ceteris paribus. But what we increased all prices and all wages by a ...


6

One of the patterns to watch for, which may or may not be a benefit, is what happens during periods of capital controls, account confiscations, hyperinflation, or other financial controls imposed on citizens. Many people will highlight Cyprus as an example, but that's only one example and it's too early to tell if it will be an alternative electronic safe ...


5

Bond yields falling from their current near-zero position will place them in negative yield territory. Negative bond yields are deflationary by definition. Paragraph 3, sentence 5 of the article says: With Bank Rate already close to the floor, and some UK bond yields now in negative territory... [emphasis added] To understand why negative bond yields ...


5

What is the reasoning behind the notion that because bitcoin has no intrinsic value therefore it's not suitable as currency? Or, to put another way, if no one "held" US dollars, but simply used them to spend or invest, would that invalidate it as a currency for buying chickens? The author addresses the difference between bitcoin and fiat currency (...


5

Krugman's classic story of a babysitting co-op never uses the word "deflation" but describes it perfectly. Go read it first. Basically, if you think of money as a thing that has a price level, just as other things have prices, it's possible to imagine that price level falling relative to other goods (inflation) or doing the reverse (deflation). Inflation is,...


4

If the borrower is a firm, lower prices means your output is selling for less, so you need to sell more units in order to repay the debt (assuming a constant profit margin). For an individual, the buried assumption is that wages are also falling in the deflation. In which case, the debt is increasing relative to your wages. However, if your wages have not ...


3

To the question "can't computer scientists be just as corrupt?" of course the answer is yes. The thing of it is that every bit of bitcoin is open source so everything is trust and verify with bitcoin. With status quo banking everything is trust and.... trust some more. Everything that I'll list as a benefit could equally be seen as a deterrent to a ...


3

There is a long, theoretical answer to your question. I'm going to give a much abbreviated version, and some pointers to some excellent theoretical literature on the topic. The immediate answer is that the level of the currency doesn't matter, but rather the change in the level of the currency -- or, inflation -- matters. Then the next question is, why don'...


2

When economists worry about inflation or deflation, they are not necessarily worried about the normative value of the currency. The number of zeroes on any given bill only become a problem with massive hyperinflation, like with the Zimbabwean dollar or massive deflation, of which I do not think a given real world example exists (If this is wrong, please ...


2

Brand new currencies do typically aim to start off at the middle ground you describe. The problem is that over time, you have inflation (or more rarely deflation), so that over time the currency veers away from this middle ground. For example, when the Rhodesian dollar first started in 1970, it was set so that it was roughly the same as a USD, which is ...


2

Think about the permanent income hypothesis. People's spending is dependent not just on present income, but also the future stream of income. A deflation usually indicates a recession. The central bank is trying to optimize monetary policy subject to a short run Phillip's curve. $$\min_{u, \pi} V(u, \pi) = -(u^2 + \pi^2)$$ such that $$u = u^* + k(\pi^e - \...


2

As with inflation, so long as deflation is expected, there is no distortion. The expected deflation is simply built into interest rates. For example, if I expect deflation to be 1% per year and I am looking for a 5% real return on an investment, then I'll look for investments with a 4% nominal return.


2

So I think a particularly useful thing to discuss here is exactly what the interest rate is and why it's set at any given level. The theory is that there is a "natural" rate of interest, at which inflation is neither increasing nor decreasing. The natural rate varies based on the levels of savings, global demography and changes in productivity and technology....


2

There are many reasons why money printing does not lead to inflation, but the main one, according to the Fed themselves, is high unemployment. As long as a large portion of population is out of work, they are not receiving salary and therefore not spending. If buyers don't spend or spend too little, the sellers are hesitant to raise prices. There are ...


2

Because you can't push on a piece of string. As in the Great Depression of the 1930s, we've collectively got massive personal debt, depressing demand, moving us towards deflation, which pushes up debt, and so it goes. We've also known since the 1930s that monetary expansion in and of itself cannot stimulate demand under these conditions: it can only create ...


2

In general, it is possible to find assets that earn a positive yield. There are still positive-yield low-risk bonds and savings accounts out there, for most currencies. Therefore, rational people should in general prefer these to a higher-risk asset which has zero yield. So, your quote is saying that the only way that rational people will choose to hold a ...


2

To understand the situation you have to realize that there are two types of money in the economy. Government base money & bank money (mostly deposits). Bank deposits great outnumber government base money (MB). When deflation happens, is conceptually very similar to a bank run. Depositors demand short term assets or base money instead of long term ...


2

I suspect there is a small mistake in your notes. Deflation does not cause banks to increase their interest rates. However it is true that a deflationary spiral (or plain deflation for that matter) causes real interest rates to increase. These are the interest rates that matter for the economy anyway, which is why in macroeconomics we often refer to the ...


2

It is certainly possible for a central bank to move the economy away from liquidity trap or deflation trap by proper signals. Signals and targets are undoubtedly effective, as this NBER paper discusses http://www.nber.org/papers/w13932. I read an article, which I cannot find now, saying that signalling and targeting by central banks are sometimes more ...


2

This is not an answer that will state exactly which assumptions are valid/invalid but rather a guide to find answers to your question. Here are various scientific articles about the topic: These first two papers take what is called a Political Economy perspective on the matter. They assume that the central bank controls inflation, but the central bank is ...


2

Here is some evidence from third-party colleagues who have been to Japan in the 90s and recently visited again last year. He informed me that prices were the same as in the 90s or lower. This is definitely the result of deflation working in Japan. Another example of deflation in action is a report you can read here: https://www.ozy.com/fast-forward/back-to-...


2

People think that inflation is bad when it gets out of control, say when its more than 3 or 4% a year. The idea is that we all make economic decisions based on prices and its harder to make those decisions when the prices are constantly changing! Moreover, we try to avoid holding on to money and committing to a price for a long time, because we know those ...


2

Deflationary recession refers to a recession in which prices are falling. An example was the Great Depression. Below you have a graph of the yearly rate of change in CPI. A negative number means a fall in prices, i.e. deflation. Shaded areas mean recession period according to NBER. Some argue that deflation was actually a factor contributing towards the ...


2

I would like to answer this question by sort of describing what each would start to look like. In an area where the population is aging, the resulting decline in incomes and spending tend to be deflationary because less money is earned and less money is spent, reducing economic activity, also known as Gross Domestic Product. The elderly also sell assets ...


2

When it is said that currencies are 'fixed' against each other, they are maintained fixed. The exchange rate will still keep fluctuating, as there is obviously still a supply of and demand for the currency. The goal of the central bank is just to keep it within a certain range. In the case of a gold standard, the central bank basically guarantees gold as ...


2

On 1st Jan 2020, D borrows \$1000 from C for one year. (So, D must repay C \$1000 on 1st Jan 2021.) Suppose that apples are the only good that is produced and consumed, and that on 1st Jan 2020, the price of each apple is \$1. Then D has borrowed the equivalent of 1000 apples from C. Suppose there is 50% deflation over the course of 2020, so that on 1st ...


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