Unfortunately, at a second look, it's no longer that good imho, since this ignores the fact that some smart and worthy people may have a life outside the forum and will punish them for that. Or it ignores the fact that forum users did and will pass away and it will look ugly/strange to see this or that user has became newbie again, somehow ignoring his achievements.
When I first saw the post these exact thoughts came to my mind. Also, a user doesn't post regularly doesn't mean he is not active. Many users came to the forum to read other people's comments on their interesting topics. Earning merits should be optional and gratitude for contribution. The demotion system will force many people to earn merits in an illegal way.