Quote from: Billy3 on May 06, 2013, 01:39:45 PM

So, many have been talking about deflation in terms of 'prices down 20% today since yesterday; and will probably be down again tomorrow'. This is reasonable based on the current moves BTC has been making.

In terms of a possible antithesis to the USD though, let's pretend BTC takes over about a trillion dollars worth of M1 - checking and savings accounts - and settles at $100,000 USD per BTC and begins moving up gently along a 3% uptrend. So, now we talk about buying rice today vs. starving to get it .25% cheaper next month; these purchases will obviously still happen.

I don't know if BTC could ever be the only currency in the world but think about if it, or something like it, was. In terms of this type of deflation, how would the world look? Would loans be made at negative rates? Could you borrow at a prime rate of -1%? If so, an interest-only loan might be reasonable. Would people borrow BTC and pay interest only to buy a nice house? Would renting make more sense?

Keep in mind, if BTC were the only currency then only productivity increases and workforce increases would deflate things, so deflation wouldn't be a sure thing at all times. Couldn't we still see temporary inflation during periods of a workforce decline (e.g. Baby Boomers)?

Maybe deflation like this could be a solution and not a problem. Would the world really end as we know it - like they tell us? Would we really spiral downward into oblivion? GDP would certainly take a big hit with that transition but how would we come out of that initial depression?

A well put question. If this really happened (dubious scenario though which we'll return to), I would agree with your proposed implications. This would not be a problem. In fact, we *normally* experience deflation in certain markets all the time ... for example cost per unit of bandwidth, computing power, television quality, etc, where the pace of technological advancement and associated productivity improvements exceeds the insane growth rates in base money supplies. I would think, yes, that one would get mortgages involving the repayment of less BTC's than the quoted price over a period of time.

That all said ... I do not think this is a natural state of affairs over the long term. I believe if BTC's were such a store of value that they rose in value vs. pretty much everything for a pretty much guaranteed-to-be-long-time that other currencies would rise up to compete with BTC's in order to make exchange easier. This, unless I am vastly mistaken, would seem to be one of the conclusions of Gresham's law.

I hope none of the above is read as a critique of BTC's ... there's alot to be said for a currency that is fixed or near fixed in supply! But:

1. competition and freedom are good things. People will have numerous currencies and that's great. I am hopeful there will be multiple crypto currencies in addition to the base metals.
2. While base BTC count can be fixed credit instruments can actually increase the notional amount of money.... This is the same thing that can happen when bullion banks issue notes on a fractional reserve basis. There is nothing wrong with this as long as there is no government insurance to encourage moral hazard on the creditor side. This means that money supply is not notionally fixed persay when the underlying count of BTC's are fixed... because people will trade Letters of Credit (i.e. promises to deliver BTC's at later dates in whatever form and format) and will have real social credit between them... for this reason its hard to imagine a world where currency, globally, everywhere, all the time is actually fixed...

What I hope for is an end to legal tender laws and a free market for currencies and banking. Unlikely to happen, I know, but us libertarians must all have dreams.