Quote from: sublime5447 on December 28, 2013, 08:01:54 PM

+100 you gotta be a special kinda retard to equate falling prices that are result of greater efficacy and new technology with falling prices that are a result of a deflationary currency..

Falling prices are good inflation and deflation are bad.

In his defense this error is the NORM in the BTC universe and the broader gold-buggery communities. It's repeated like a kind of mantra by the deflationary faithful. Part of the error lies in the gold-bugs refusal to look at economic choices and incentives from the perspective of ANY other person in the economy other then speculators like themselves. When your holding a deflating currency, and really any asset that is rising in value (such as homes in the housing bubble) you DO experience a kind of 'wealth effect' in which you feel wealthier and become a bit looser with discretionary spending. The individual will logically adopt a 'shaving' policy of selling off a % of their asset LESS then the yearly appreciation rate so they can milk it indefinitely. So gold-bugs then blithely claim this wealth-effect spending will make the economy prosperous and all opposing arguments can be dismissed out of hand.

But when you look from the perspective of the entrepreneur you see how this falls apart. The entrepreneur in a capitalist society has to borrow money to make purchases of capitol goods and that means the interest rate is a KEY factor in determining how much money entrepreneur will be lent. Some entrepreneur will have highly profitable ideas/opportunities some will have less, a whole spectrum will exist but only the entrepreneur with an expected return above the rate of interest will be funded. In addition the entrepreneur will keep a higher percentage of their return because the entrepreneur share is the real rate minus the interest rate, so lower rates encourage more people to take the risk and commit the great personal investment of time and energy to BE entrepreneurs and seek out and create the ideas/opportunities that are the basis for entrepreneurial-ism.

This is why we lower interest rates to stimulate the economy, it causes more money to flow into the hands of entrepreneurs and more to be invested. Deflation raises interest rates because potential lenders are happy to just hold money and the prospective investment has to have a real rate of return greater then the interest rate. An idea that promises to return 4% is not funded when interest rates are 5%, and an idea that promises 6% will yield only 1% left over for the entrepreneur after interest has been payed back, hardly much incentive for the entrepreneur to try the idea or even seek a loan.