Comment by asynchrony | Hacker News Reader

Comment by asynchrony | Hacker News Reader

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Inflation benefits borrowers more than hoarders. Your example is strange because in the one you compare a base currency to economic activity in that currency and in the other you take a loan in one currency in order to transact in another. If you borrow bolivars to start a Venezuelan corner store, at least your debt would lose value as rapidly as the currency you receive from your customers. If the price of BTC continues to rise indefinitely, you would be in for an even worse time if you borrowed BTC to start your Venezuelan corner store.

I also don't see how infinite divisibility helps. It's still deflation. Let's say the world converts to BTC. Now if I take a loan of 1 BTC to start my corner store, the value of that 1 BTC will continue to increase, but if the goods selling do not increase in price, I will have to charge less and less for them over time. There's the same amount of space between 1 and 0 as there is between 1 and infinity.

You can rephrase that as inflation benefits borrowers more that savers. And borrowers benefit lenders. In the opposite paradigm, savers benefit savers and savers benefit investors. Think of a scenarios that is made up of an economy of a single currency, that is deflationary and everybody saves as much as they can, but they have to eat, so trade still occurs. Those that can save more accumulate more purchasing power until they think it wise to invest and get a greater return. Assuming all perfect investment execution, wealth would tend to aggregate as we see, but overall everybody benefits and see the rising tide lift all boats.

Savers can choose to loan their currency to a bank for some guaranteed returns, they can loan it to corporations and public institutions in the form of bonds, or they can purchase ownership of real estate and businesses through equities. They can buy bitcoin if they consider it a wise investment. Only lenders and the people who insist on hoarding cash suffer from inflation.

Historically deflation has resulted in economic stagnation and depression. The reason is that there is no incentive to borrow or spend money on a risky investment when increasing value of currency over time is guaranteed. What exactly is supposed to be different this time?

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