The biggest problem with deflation is debt accumulation. With deflation any debt is more expensive to pay off than the value of the goods originally obtained with said debt. Right now the theory in the US with government debt is that it isn't a big a problem because we will eventually inflate our way passed the hump of our national debt. Not something I prescribe to, as the cost of government would then still increase at the same greater-than-inflation rate that got us in the hole.

Right now it is very hard (read: impossible) to setup an ENFORCEABLE, loan and debt society in BTC as without government support there is no government to validate the debt by force. I am not saying I want government anything tied up in BTC affairs, but contract enforcement should be currency neutral. If we could get a test case for breach of contract with BTC as the medium of exchange, that would do wonders.

-Richard