Re: Why such agreement that Deflationary currency is a bad thing

As somebody who has studied economics, can I just state that stable low inflation is the BEST course for any currency (whether virtual or fiat)?

Why else do the largest most established central banks try to achieve inflation rates of around 2%?

To slightly go into detail but not too much because I don't want to be pedantic.

Inflation encourages investment. If on average you expect your holdings to be worth less in the future you will logically invest it to hedge against value loss. Investment leads to economic stimulation in the real economy. That is a positive cycle.

Also, there is probably an optimal number for inflation that economies target to balance everything out.

I would include a link to a random article for support but I'm lazy. Just google "optimal monetary policy".

You're looking at the "problem" wrong. You're looking through the glasses that have been coloured by the current fiat monetary systems. In our fiat systems, debt is money. In these instances deflation causes the real value of debt to increase, reducing the willingness of people to lend, reducing the availability of debt, reducing the supply of money, and there you have your deflationary spiral.

In a non-debt-based system, at lease one link in that chain (reduction in supply of money) is broken, so deflation doesn't need to lead to a deflationary spiral.

And as for your arguments in favour of fiat... you say "inflation encourages investment".... who says that a monetary system needs to either encourage or discourage investment? One could argue that inflation encourages malinvestment, as it lowers the cost of debt, and lowers the return required for investment to be considered worthwhile. Productive investment is good for all, malinvestment is not.

But you know what - your opinion, my opinion, all worthless. We live in interesting times, and with some luck in my lifetime a significant number of people are going to be proven so incredibly, ridiculously wrong that future generations will look back upon that group as we currently look upon those who believe the earth is flat. Which group that is remains to be seen, and in the meantime all else is hot air.

No I am not stating my opinion, I am reiterating economic theory. In a monetary system of fixed supply (let's say 21 million units in 2140) which encounters rising demand for money velocity driven by REAL economic growth, by definition, increases the price of the monetary unit.

Once people observe or expect to observe this, a deflationary spiral takes hold and destroys the REAL economy which depends on this monetary unit of transaction.

Please start here
http://en.wikipedia.org/wiki/Quantity_theory_of_money

Reading that won't bring you completely up to speed but it's a start. Sorry, I can't help but be pedantic on this topic.

OK, time to be pedantic here. Your use of the word "theory" is that of the common usage (ie. an idea, more scientifically a hypothesis).

My "theory" is that the deflationary spiral is only an almost-guaranteed outcome in a system where debt and money are one-and-the-same.

The argument that all deflation is bad is rubbish. In the economy right now, there are items deflating greatly in value. My phone, two years old, is worth new today half what I paid for it. I bought it knowing it would be half price in two years, because I needed a phone.

Yet somehow, if the "average" level of inflation (by whatever particular weighting and adjustments that men paid more than I am are paid to make) is below zero, the economy will collapse.

But like I said - so much hot air, but only time will tell for sure. And in the long run we are all dead.

can we look at the past periods of deflation?

http://en.wikipedia.org/wiki/Deflation#Effects

"Deflation was present during most economic depressions in US history[22] Deflation is generally regarded negatively, as it causes a transfer of wealth from borrowers and holders of illiquid assets, to the benefit of savers and of holders of liquid assets and currency, and because confused pricing signals[citation needed] cause malinvestment, in the form of under-investment."