There we go, one thing straight out of a hat that I could learn from. Thank you

But now that I understand what it means let me try and explain what I meant and why it is not.

I had decided to step out of the macro economy context to answer an argument you hadn't put - which was probably not the wisest thing to do - but seeing as it was misunderstood anyway...

Let's say I convert to bitcoins for whatever reasons (I was tempted to put why but it would only give you something else besides the point to get picky about) with view to holding long term.  Then I go about my daily life - which among other things involves getting paid in fiat and buying things.  Some of my pay may go towards adding my bitcoin holding but I may also decide (for whatever reasons) to buy some things with bitcoin.  Either for convenience's sake I add the fiat for the bitcoin I want to spend (which I would have spent in fiat anyway) to the same transaction or as and when I want to spend bitcoin I convert then spend immediately.

Now if I use my spending bitcoins as a credit card equivalent (i.e. as you suggest, spend some of my saved bitcoins then replace them) then yes, assuming bitcoin value is on the way up (note I'm not making that assumption, just for the sake of argument keeping the same conditions as those you described) I will have lost out.  However if we assume I want to pay up front I convert to bitcoin first so assuming the saving through buying in bitcoin is equivalent to the cost of transfer (again just keeping your implicit assumption the same) then whatever the upward-movement gain that happens in the meantime is a bonus.

Either way what I'm saying is there is no need for us normal folk with some interest in bitcoin, as individuals, to be in a dilemma about whether one 'should' save or spend bitcoins.

I don't see anybody here pretending there is no risk associated with bitcoin but for the sake of argument let's talk about the odd extremist (in risk terms) who immediately converts all her fiat to bitcoin as soon as she receives it and finds a way of using bitcoin for everything.  First, she's unlikely to be the kind of person who is going to worry about the save or spend 'dilemma' from the personal perspective any more than someone living their live exclusively in pounds or dollars.  Here the consideration is the argument against deflation put forward by Krugman and his ilk that a price deflationary currency discourages spending.  The argument goes that the consequence is more saving and less spending which is a bad thing in the eyes of those who think lots of money being spent today is the answer to all economic woes.  Their conclusion appears to be that an economy using this currency (exclusively?) will fail and therefore such a currency is a bad thing.  I tend to disagree but this is an experiment.  In due course if bitcoin hangs around long enough we may get to find out.

It's not what I was saying but it wouldn't work anyway because as I point out later the USD has a mechanism to control the money supply at whim so enough people putting money under the bed would be an excuse for the FED to print more money.  Everybody loses.  And even if the fed decided to let 'the people' determine the money supply in this manner by not responding and people put 90% of their dollars under the bed (let's forget M2 & M3 for now) it still wouldn't work unless the fed also started splitting the cent in order to enable more accurate prices and spend on lower value items.  Bitcoin has neither of these problems.

You accuse me of conflating arguments but blimey, just read that again ^ and see all the separate points you tried to mush together into that paragraph!

So let's take the untangling exercise:

Motivation of speculators != role of speculation for a currency. Nobody said speculators nobly, benevolently and altruistically go into the market in order to make bitcoins available for those who need them for anything other than speculation.  Speculators do what speculators do for their own reasons.  One consequence to the extent that they do is that there is a liquid market for those needing to buy or sell bitcoins.  Another consequence can be big fluctuations in price but the can also have the opposite effect of taking out spikes and troughs that big changes in underlying supply or demand would otherwise cause.  I'm not trying to say it is perfect.  Just that it is what it is.  I'm talking about day traders here.  Although there are no clear boundaries for the sake of argument (and that they don't really provide liquidity other than at the time of purchase) I'm not including long-term speculators/savers/hoarders.  For the purposes of my argument they are those holding bitcoin out of circulation - and the whole point of our debate here is based on the question of whether this is a problem for bitcoin.

In order to see whether my argument floats or not we need to conceptually keep things simple and to do that we need to 'clean up' things that are not in reality as straightforward and clear cut to get to the principles of what works or doesn't and why.  Saying 'your argument doesn't work because in reality things are a lot more messy (and terrible because of nasty speculators and hoarders)' doesn't help!

Let me try make it even simpler and assume everybody using bitcoin to spend or send have enough connections that they can all do it without need to convert back and forth to fiat.  What determines what they can buy with it or sell for it?  Supply and demand of the active.  Every time more is being saved/hoarded than is being mined the amount left for sending and spending is less.  But because of bitcoin's divisibility this is not a problem.  Price of goods and services adjust according to the scarcity of the commodity/currency used to purchase them so no matter how little bitcoin is available to spend (even if the global bitcoin economy is running on a small fraction of a bitcoin) it is enough.  My point is there is no practical 'save or spend' dilemma for bitcoin either.

The only thing in principle adding a market between bitcoin and other currencies does is to make it possible for people not to need to be in a closed bitcoin economy in order to use bitcoin (and enables people to be able to spend their bitcoins on stuff that can't currently be bought - or bought as conveniently - with bitcoin.  As a bonus, it also enables us not to need to look at the buying power of bitcoins in terms of a bag of groceries or cars but that we can put a $ price to it at any given moment.