Inflation is not the biggest issue for the existing financial system and global reserve currencies- it's actually deflation. This challenge forces governments to consider QE or negative interest rates just to stimulate their economies, but such measures are simply a band-aid solution. It's crucial to understand #Bitcoin as it offers a decentralized alternative that can protect against deflationary pressures, serve as a hedge against global macroeconomic issues, and ultimately provide an asset class that is immune from inflationary interference by central authorities! 🚀 #btc #crypto #finance
Discussion
Protect against deflation?? What blud?
We'll never have deflation, they'll just print more.
Economists have redifined inflation / deflation to mean consumer prices go up / down. Prices naturally go down in a free market economy, as the accumulation of capital, specialization of labor, and technological improvement reduce the cost of goods and increase worker output.
However, inflation / deflation is also about the increase / decrease of money supply. Ignoring lost coins, Bitcoin is not deflationary in and of itself. $BTC is going up fast since we are in an adoption phase. Halving cycles only make Bitcoin disinflationary (meaning less inflationary).
The fiat monetary system has an elastic money supply. Money is not only created when the central banks buy securities (including sovereign debt), it is also created when private enterprise takes on new debt. The paying off of debt reduces the money supply.
When the economy slows down, less new loans are issued (by definition - premise is economic slowdown), existing loans get paid, and money supply contracts. A decreasing money supply causes decreasing cost of goods. Decreasing prices slow down economies as; (1) people feel less inclined to spend their money, (2) people are less inclined to take on debt. This is a positive feedback cycle, where economic slowdown leads to deflation, leads to further economic slowdown, leads to further deflation.
Point 2 above is particularly important. Due to the indebtedness of our economies - governments, companies and households - deflation is not viable.
When inflation (cost of goods) is at 10% a year, 10% of debt is effectively paid off. (The nominal amounts don't change obviously.)
Bitcoin doesn't (won't ever) have an elastic money supply. Assuming a Bitcoin Standard and no new adoption, economic contraction will reduce the value of Bitcoin and increase prices. Increasing prices spur on the economy. Economic growth increases the value of Bitcoin and decreases prices. Economy slows again.
Hard money economies are self balancing, existing in a state of homeostasis.