The Fed Measures Inflation in Bitcoin Terms and Tries to Mislead the General Public

Things have changed. The Fed admits defeat and recognizes bitcoin. Sure, they twist both numbers and words to try to make it look like the dollar is the better currency, but we all know what’s going on. A misattributed quote from Gandhi describes the situation: “First they ignore you, then they laugh at you, then they fight you, then you win.” We are clearly in the stage of “for them to fight you”. How did the Fed do this trick?

First, let’s see who we’re dealing with. The FRED blog published the article in question.

“FRED, short for Federal Reserve Economic Data, is an online database comprised of hundreds of thousands of time series of economic data from dozens of national, international, public, and private sources,” they said. The organization was “created and maintained by the Research Department of the Federal Reserve Bank of St. Louis.”

With that clear, let’s go to his words.

Table of Contents:

• What does the Fed think about inflation?
• What does the FED think of Bitcoin?
• Can the Federal Reserve avoid high inflation?

What does the Fed think about inflation?

The first trick the Fed uses to confuse the masses is to use a biased concept of inflation and try to mix it with the accepted volatility of bitcoin.

“Even our current high inflation rate in US dollars is dwarfed by towering spikes in Bitcoin’s inflation rate, not to mention Bitcoin’s wild swings. Never in the history of the US dollar has the rate of inflation reached the heights that Bitcoin has repeatedly reached in a few years.

Doesn’t the Fed know what inflation is? Of course they do, but if they used the correct concept, their whole argument would fall apart. Inflation is not a general increase in prices. According to the Austrian school economist Ludwig von Mises, “Inflation is an increase in the quantity of money without a corresponding increase in the demand for money, that is, for cash.” And the FED is printing money like there is no tomorrow since the pandemic. This is what causes chaos.

The Fed tortures the data to try to paint Bitcoin badly.

Your chart starts on 01/01/2016. The price of Bitcoin was around $430 then, now it is $20,000.

Bitcoin holders are literally up to 45 TIMES the fiat equivalent during this period. https://t.co/JIGXvO51HC

— Stephan Livera (@stephanlivera) July 12, 2022

Bitcoin inflation, on the other hand, is built into the code. The supply is set at 21 million bitcoins, and the amount put on the market is predictable and constant. It remains constant for four years, until halving. When the halving arrives, bitcoin inflation drops by 50%.

Therefore, the quoted paragraph is intellectually dishonest and intended to mislead the general public.

BTC price chart for 07/13/2022 on Cexio | Source: BTC/USD on TradingView.com

What does the FED think of Bitcoin?

To make matters worse (for them), the Fed randomly tries to label bitcoin price increases as bad. His own chart starts in 2016 and clearly shows, as podcaster Stephan Livera puts it, “Bitcoin holders are literally up to 45 TIMES the fiat equivalent during that time.” Also note that the author talks about bitcoin volatility but doesn’t even mention the term. Why then?

“Bitcoin is also exhibiting severe deflations. This is problematic for a currency used for transactions: with deflation, consumers expect goods to become cheaper and therefore wait to buy, which can lead to the collapse of the economy.

This, in a nutshell, is the argument of the Keynesian economists. This school of thought deliberately ignores a key fact: people have to eat. And they only have one life. How long can they wait for “goods to get cheaper”? People may not buy a new phone every year, but they will buy a phone. Returning to Stephan Livera, “While the Keynesians say that deflation is bad and causes the economy to collapse, the Austrians point out that it complicates matters.”

The world is quickly discovering that a “reserve currency” that creates a benchmark rate for all other currencies is neither safe nor stable.

A neutral reserve currency is required.
For America and the world. #bitcoins

— Jeff Booth (@JeffBooth) July 11, 2022

Speaking of confusion, notice how the Fed tries to lead the general public astray, sees deflation as a bad thing, and blames the gold standard it worked so hard to destroy.

“It has been a long time since there have been notable deflations of the dollar. Why not? All the great deflations occurred during a period when the supply of US dollars was tied to the quantity of gold: in other words, when the US economy was based on the gold standard. Without a way to manage the supply of dollars, there was no way to prevent price fluctuations when the demand for money fluctuated.

Another intellectually dishonest take. The Fed’s rampant money printing is what causes prices to fluctuate in the first place, destroying accurate price signals.

Can the Federal Reserve avoid high inflation?

In fact, they might, if they gave the money printer a well-deserved rest. However, that is not how the Fed frames it.

“Bitcoin is similar in that it also has a more or less fixed quantity that cannot respond to fluctuations in demand. Therefore, its price is bound to fluctuate more than the US dollar, which the Federal Reserve can manage to avoid high inflation.” deflation and the volatility of inflation.

This is academic dishonesty at its finest. The author finally says “volatility”, but associates it with the word “inflation”. Also, if “the Fed succeeds in avoiding high inflation,” why is it at all-time highs? Also, why does the FED say that bitcoin “has a more or less fixed amount”? There will only be 21 million BTC and that’s it.

To finish, this is perhaps the worst lie in the entire article:

“To be clear: Bitcoin is used very little for transactions anyway, perhaps due to these repeated deflations.”

Oh yeah? It’s funny, because the Federal Reserve Bank of Cleveland just published an article called “The Lightning Network: Turning Bitcoin into Money.” Bitcoinist will cover it later today.

Featured image by NikolayFrolochkin from Pixabay | Charts by TradingView

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