Role of the Dollar

WATERCOOLER
#1

Hi, I was just pondering and I came to a few realizations. The main purpose of the dollar is to be used as an asset to purchase other assets with. So to make that happen, it has to inflate or else, people will hodl dollars and not use it to buy other items. Which makes inflation a good thing. Why buy bitcoin if the dollar is increasing in value on it’s own? Why buy a house or a car? In this scenario, people might even try trading other things besides dollars to get the things they need. Look at Bitcoin for example. It is “money”, except that 90% of the people with bitcoin don’t spend it. We instead use Dollars which is a) easier to use due to debit and credit cards, and B) an asset we think nothing of, so we thoughtlessly exchange it for items we do value.

But to further this pondering quest… What is real growth? Is it just price inflation relative to the dollars value? Or is there actually an expansion? I suppose population growth, higher living standards could all all produce real growth, but do we even have that today? Or are people just paying more for the same thing?

I really don’t know. My pondering will continue I suppose.

#2

I have pondered the same things, and realize that fiat currency serves a purpose within a specific set of parameters, for a set length of time.

I don’t know if I would call fiat currency an asset, because an asset to me is the opposite of debt, when in fact the fiat we use IS the debt, since it obviously has no backing other than “the military and the government… etc” Just by leaving my fiat in the bank with a .2% interest yield, I am losing purchasing power.

The statement that the value of the dollar is “increasing in value on its own” is not an accurate portrayal of inflation, as with inflation we see an increase in the supply of money, not the value. Because there is more printed of each unit (USD) we use as currency, the value of items that you can purchase with each USD decreases. The purchasing power goes down, that is why prices of items tend to increase with inflation.

We often see hard assets and Bitcoin moving higher when the purchasing power of the dollar goes down (Inflation increases).

Gresham’s law confirms one of your assertions above, that essentially “Bad money drives out good money.” It is reasonable to recognize that the supply of Bitcoin will gradually disappear from circulation, while we use the fiat money, since it is gradually losing purchasing power. People aren’t spending Bitcoin because of the high likelihood it will appreciate in value.

Buying a pizza today with bitcoin for 20$ will likely cost far more in future terms of what that same $20 could be in say 5 years because of the deflationary nature and scarcity of Bitcoin. People hold Bitcoin and spend money for exactly your reasoning, we know it holds far more value and potential.

The philosophical questions aside, fiat currency is designed to help rapidly expand an economy, because you have no real skin in the game. We build bridges and roads and hospitals and develop defense and military with money which is simply printed.

Next, the fiat currency inflates and basically pops, whereupon you either concoct a new fiat currency to repeat the process or return to an assets backed currency now that you’ve created everything from nothing.

I would assume decentralization, equitable opportunity, healthier living conditions, and sound money would be goals I’d consider for “real growth”. There has never been a truly verifiably scarce asset like bitcoin with which to approach the idea of sound money world wide.

Pondering is fun.