Quote from: miscreanity on August 17, 2011, 01:30:26 PM

Quote from: becoin on August 17, 2011, 01:11:01 PM

Quote from: johnyj on August 17, 2011, 11:00:46 AM

If the money supply is constant, then deflation is unavoidable and will hinder the economy growth

If someone told you that economic growth depends on money supply they are plain ignorant!

You're right, economic growth does not depend on the money supply, but I believe the point being made was that it can be adversely affected or slowed by it. Deflation to anything less than a purely cash-based economy would have to make up the difference in economic activity with delayed payment or barter. Even reduction in available credit can act as a drag when the system has grown into such flexibility.

If a money supply remains constant while the economy grows, eventually the money supply becomes inadequate to facilitate trade throughout the entire economy. Consequences vary, but all are disruptive.

Deflation is more a problem for banks to deal with than for people or for a centralized system... The big problem with deflation is for wages and for contracts involving loans/debt, but the easy fix is to just put terms into the contract with reference to inflation/deflation.

e.g. you have a loan for 1000$ at 3% annual for five years. However, make the 3% annual adjusted for central/foreign currency or commodity inflation or deflation, so that it's 3% above whatever the currency has modified to. If it this year saw a 5% deflation (increase in value of currency +5% or -5% inflation), make the amount owed negative 2%. If there is 5% deflation, there should be a clause in worker contracts that specifies their wages will go down too. This is what banks should have been doing in the first place... NOT the Federal Reserve who has been consistent in messing everything up for the past while by never contracting the US money supply.

The only nice thing about a linear supply of money compared to a deflationary supply is that early adopters will not destroy it by getting way more than anyone else... Eventually there will be no reason to mine anymore with a deflationary curve, which is one of the long term dangers of BTC (a supply not capable of contraction). But that hasn't deterred gold as an investment.

A better curve for difficulty may be one that is non-formulaic and ties supply to weighted global currency values and supplies, reflecting the amount of wealth presently available. In the event of recession the output could be contracted by higher difficulties, while in economically favourable times it could be expanded with lower difficulties. Just an idea. You could go through economic papers and then probably hard code something that accesses currency values/supplies on the web and calculates the difficulty based upon those. This would be a real advancement in the online currency world, instead of digital equivalents of gold or of inflation-ridden USD.