Quote from: bitchess on April 29, 2013, 11:30:53 PM

Quote from: Rodyland on April 29, 2013, 10:08:51 PM

Quote from: bitchess on April 29, 2013, 11:14:29 AM

(& that action contributes to decreasing overall money supply which propagates a deflationary spiral.)

And that is where I believe you are wrong. In bitcoin land, paying back a loan does not reduce the supply of money, so there is no deflationary spiral. In bitcoin land, paying back a loan simply means that those bitcoins are once again available to be loaned out.

Just plain old deflation, which is good for savers and bad for debtors (the exact opposite of inflation, which is good for debtors and bad for savers).

once you pay back the loan, nobody will take out another loan, based on the preceding argument. the drying up of all lending activity starts the spiral.

i am assuming that BTC is the only currency that exists. in the real world, people would just continue to loan in USD, which we trust the banks to keep at stable low inflation rates.

the point of the conversation is to highlight why BTC needs to address the limited supply issue before it will achieve stability and potential to truly become a widespread currency like the dollar.

I think that your assertion is likely how things will develop. The Fiats won't disappear, rather BTC will act as a check on a currently unchecked group of central banks. People will no longer stand for negative savings rates. People will take their loans in fiat and keep their savings in BTC.

If company wants a loan they certainly won't want it in BTC, they will ask for it in Dollars, Yen etc. The return on investments will be competing with the return on savings (read BTC) just as it always has. This will serve as a winnowing process with the less attractive investments failing to achieve funding. This may also have the effect of reducing the endless phenomenon of recurring bubbles as excess money sloshing around looks for a home. People will flock to a store of value that is much more liquid than gold; BTC.

In the end, BTC won't be the only currency in existence; the likely position of BTC will be to take over a large portion of what economists call M1 - the most liquid portion of the entire money supply.

Billy3

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