[ogogmad]

You got it the wrong way round. Deflation means when prices are dropping. The price of computers has fallen over time predictably and exponentially, and yet that hasn't stopped people from buying them. The Keynesian argument against deflation is that it disincentivizes people from spending money as they expect prices to drop. This disincentive hasn't prevented the computer industry from being a huge success. The fact that you know that if you wait some time you can get a faster and cheaper computer doesn't prevent you ad infinitum from buying computers.

[rodiger]

Kinda unintuitive, but if you look at processing power as a currency, it is actually undergoing hyperinflation (number of computers + processing power increases every year). Meaning you buy a computer, assuming its value will drop (due to the inflationary nature).

[spurgu]

> if you look at processing power as a currency, it is actually undergoing hyperinflation

So in relation (for this particular scenario) the USD is undergoing hyperdeflation..?

Whatever you call it the psychological effect with computers is the same as with a rising bitcoin price - you get more bang for the buck the longer you hold off on your purchase.

[a1369209993]

> So in relation (for this particular scenario) the USD is undergoing hyperdeflation..?

Relative to computers/processing power, yes, although you generally wouldn't describe it that way, since USD is (comparatively) stable with respect most other stores of value - it's computers that are changing in value, so it's computers that should be described as undergoing inflation.

Relative to (the relevant average of) other stores of value, dollars are undergoing inflation, just more slowly than computers.

[ogogmad]

Except processing power is not a currency, so it's the opposite way round...

[rodiger]

If you're looking at USD as the base asset, computers are undergoing inflation, not deflation. Both USD and computers are inflating in supply, but computers are inflating faster (in terms of processing power at least)- hence the continuous drop in price. You could argue USD is deflating in comparison to computers, but computers are not deflating in comparison to USD.

Edit for a bit more clarity: Inflation / Deflation is relative to a "base asset" which is considered unchanged in value. For USD this is normally a standard basket of assets (foreign currencies or a "market basket").

[a1369209993]

> Meaning you buy a computer, assuming its value will drop (due to the inflationary nature).

Exactly. Similarly, if you buy a dollar, its value will drop (though not as quickly).

OTOH, bitcoins are the opposite of both dollars and computers: bitcoins are deflationary, and rise in value. This is a terrible property for a currency, since it encourages speculation and hording in preference to circulation.