Quote from: amwt on February 14, 2011, 06:05:41 PM

I have always been told that a steady inflationary economy (steady decrease in purchasing power of local currency) is healthy because people do spend money, and a high velocity of money is a good thing.

Simplistically in a real world economy with a strengthening currency, domestic spending is relatively unaffected but people enjoy better quality of life as imports appear cheaper. Export though suffers.

In the Bitcoin economy it's has a strengthening currency but it's 100% import (purchase of goods/services valued solely in "foreign" currencies). Worse still, every citizen of this Bitcoin economy really still thinks in terms of those "foreign" currencies. Why spend today when one can get more tomorrow? People stop spending and velocity of money slows to a halt, which obviously is unhealthy.

Whilst the community is still driven by enthusiasts, we should make a point (perhaps economically irrational) to generate/use/convert BTC, and not hoard it. Or, at least set aside a tiny portion for "savings" purposes.

I don't think a low velocity is "obviously unhealthy" ...it might be, but I'm not certain. Also, the notion that a steady inflationary economy is healthy because it induces people to spend is Keynesian BS IMO. On the surface it seems intuitive...better to have people spend or invest money than to hoard it. However, if you realize that hoarding is benefitting those that hold whatever is being hoarded with greater purchasing power, then what you are in effect doing is making a rational economic decision between investing in the community as a whole (hoarding) vs investing in some specific endeavor or consuming some good or service. So, it's not obvious to me that steady inflation or hoarding are either good or bad.