But someone will still create a new currency at some point to compete with it once your coins become valuable enough or too hard to mine, I wasn't really talking about lost coins. The supply of coins from the new network would diminish the value of your coins.
Well sure, that can and will happen, but the new competing currency must first be superior to devalue the old currency, as the failures of Ixcoin and I0coin have demostrated. The primary purpose of this currency is as a means of exchange rather than a store of value anyway so a new superior currency would be embraced, not fought.
I should say savings is discouraged, which in turn would diminish lending since money to lend comes from savings.
Saving as in "holding your money on your wallet" is discouraged, saving as in "trying to maintain your purchasing power somehow" is not. The only thing that changes is the way to save; instead of just holding it you buy assets like stocks, bonds, ETFs, commodities, etc.
@jackjack: Unable to refute like a man huh?