Quote from: freebitcoinwin on February 09, 2014, 10:07:31 PM

Quote from: NickPortland on February 09, 2014, 09:57:12 PM

Bitcoin is devaluing compared to USD and EUR, there's no deflation involved

Was talking in long terms

If you're really talking long term than you have to ignore short term volatility. Bitcoin's price relative to fiat is volatile because its so young. Trying to deal with that problem and the deflation issue, which wont actually be a problem until many years from now, will get you nowhere.

Deflation is not a bad thing, most currencies were mildly deflationary up until the last 150 years or so. Recessions were more frequent but shorter and of lower magnitude. I would recommend reading the first few sections of "A Histroy of Money and Banking", it talks about deflationary systems that worked extremely well in addition to free banking systems, where banks could issue their own currency (similar to bitcoin in that we now have currency competition within countries). There is a lot of economic theory that says that deflation is not bad in an of itself readily available on Google.

The problem lies in the fact that we are so used to inflationary currencies that our economic system needs this inflation to survive. Without inflation governments cannot pay their massive debts. We live in a credit based economy where outstanding debt far exceeds the money supply. Think of it this way, people in debt love inflation, because money they owe is worth less and less as time progresses. Banks account for this via the interest rate they charge on loans. Because we live in a system where most people are in debt, a deflationary currency could be problematic. However, if you aren't in debt its a great system, one that doesn't penalize you for saving money (as is the case currently).

Also take a look at this article http://globaleconomicanalysis.blogspot.com/2014/02/deflation-theory-reality-check-why.html

which pretty much obliterates the idea that deflation results in consumers holding off purchases and thus crashing the economy. All in all both inflationary and deflationary systems have drawbacks, bitcoin simply represents the first instance in history where consumers can put their faith in a currency that can never be inflated.

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