> Deflation at some point causes people to build stashes of tokens instead of investing in real businesses with real production capacity.
I am deeply skeptical of this claim. I would still rather invest in a real business than get a 0% return on my stash. If a free market for currency existed, no way in hell would I choose to store my wealth in a depleting asset.
Plus, any argument about hoarding cash should consider the multitude of billionaires that exist and whose presence is not crashing economies around the world. (Yes, most billionaires have most of their wealth in business investments, but they still have bigger piles of cash than you or I can reasonably fathom.)
What you're espousing seems to be standard Keynesian economics but you should know there are other schools of thought :)
Yes but what about the not so rare times explained in my original comment when returns on tangible private marginal assets become negative (on a risk adjusted, liquidity adjusted basis)? During the financial crisis of 2008, the tailor rule put the natural rate (a rate correlated with private marginal safe asset returns) at as low as -4%. In those conditions, having a currency that returns 0% risk free gets you way above market returns and blocks a lot of private market assets from existing. It's indirectly, a huge subsidy to people shutting down projects, laying off people and hoarding government paper instead. It's basically the government shielding savings from the private markets and causing untold economic damage through economic idleness and unemployment. It's a subsidy on job destruction.
At least a private currency like bitcoin or gold will tend to become volatile in these conditions (which increases its risk and reduces its "risk adjusted" return). But if ever crypto coins were to become popular enough for governments to deem it worth it to use their powers to reduce their volatility, it could certainly put the economy into a gridlock like it did when they tried to artificially stabilize gold.
The fact that crypto coins in a free market tend towards increasing volatility makes them not very good as a medium of account to negotiate contracts and conduct business. It makes them not useful as a currency.
> The fact that crypto coins in a free market tend towards increasing volatility makes them not very good as a medium of account to negotiate contracts and conduct business.
Crypto volatility is not solely or even primarily because of the coins' deflationary natures. In fact some cryptos ("shitcoins") are not deflationary at all, and have their value regularly inflated by a central authority.
Note that my comment said Bitcoin specifically and not crypto in general. The ultimate deflationary currency, gold, is not volatile at all, which leads me to believe that crypto volatility is because of external factors like market manipulation, shady ICOs, etc.
> It's indirectly, a huge subsidy to people shutting down projects, laying off people and hoarding government paper instead.
As a counterpoint, consider how an inflationary currency causes income equality. Poor people typically hold their net worth in cash whereas the rich have the ability to invest in income generating assets. An inflationary currency ensures that the poor remain poor, because their primary asset is being constantly depleted.
Gold is very volatile (sure not as much as cryptocoins) and this is for the best as gold volatility prevents it from hurting the macro-economy.
You think poor people get a better deal getting a few bucks a year of returns on the little savings that they have while being forced to indirectly fund a much larger subsidy on rich people's wealth, a subsidy that is given specifically to the those who get out of the private markets in favor of holding government paper, that close down businesses and lay these poor people off?
I won't be responding to follow ups to this conversation as it doesn't feel very fruitful but there's a couple things in your comment that just don't follow for me.
How is an asset that holds its value a subsidy? How are poor people indirectly funding that subsidy by holding an asset that doesn't inflate? Really seems like you're projecting qualities onto something that just aren't there.
Plus there are other factors in wealth inequality besides cash holdings -- wages (minimum or otherwise) that don't keep up with inflation being the most notable.
If it is stabilized by a government to hold its value while marginal assets on the private markets only offers negative returns (adjusted for risk and liquidity), the government stabilized asset is effectively a forced subsidy.
It's a subsidy to those who hold the subsidized asset from those who don't hold any (though long term it's a bit unpredictable who exactly ends up footing the bill, it depends on whether it happens through inflation or taxes or price distortions etc.).
What is super destructive about this type of subsidy is that it displaces private investment. The world shifts from people owning real shit, such as factories, inventories, business infrastructure, machinery, houses, cars, etc. to collectively holding government manipulated tokens. While for an individual, holding the tokens is more advantageous, for the aggregate it's super destructive as it becomes a negative sum game.
Tokens are just IOUs. They don't have intrinsic value. When everyone wealth is in the form of a promise that everyone else owes them something, no one really has anything.
Especially this:
> Deflation at some point causes people to build stashes of tokens instead of investing in real businesses with real production capacity.
I am deeply skeptical of this claim. I would still rather invest in a real business than get a 0% return on my stash. If a free market for currency existed, no way in hell would I choose to store my wealth in a depleting asset.
Plus, any argument about hoarding cash should consider the multitude of billionaires that exist and whose presence is not crashing economies around the world. (Yes, most billionaires have most of their wealth in business investments, but they still have bigger piles of cash than you or I can reasonably fathom.)
What you're espousing seems to be standard Keynesian economics but you should know there are other schools of thought :)