[dj2stein9]

I don't believe the argument that a deflationary currency, by itself, will make people not be willing to buy things. Consider a savings account - why would anyone take money out of their savings account to buy things? If all you need to do is keep it in the account, it will make more money, so why spend it?

[omni]

It's a question of degree. Your savings account with $100,000 in it will probably be worth about $100,002 tomorrow at current rates. The equivalent amount in Bitcoin might be worth much, much more at the rate it's been climbing.

[SkyMarshal]

Or much much less, and it has been known to fall precipitously as well.

[richcollins]

It doesn't matter if you keep converting your income to BTC as it comes in, because if you spend your USD income instead of buying BTC then you've effectively done the same thing.

[SkyMarshal]

That bit of economics common knowledge was also developed before our modern, dynamic, fast, globally interconnected economy. I'm sure there's still some technical truth to it, but I wonder if it's as true now to the degree it was back in, say, the Depression era.

It would be interesting to see how a currency with a set rate of deflation instead of inflation worked now. Say your money gained 3% per year purchasing power instead of lost it, everyone would be incentivized to spend or invest it in ways that returned either ROI or utility worth at least 3% per year, or otherwise hoard it. Spending and investment (or at least malinvestment) would slow, but capital formation would increase.

Too bad there's no way to test such a thing, see how it works out in practice. BTC unfortunately does not seem to provide a stable rate of deflation, at least for the foreseeble future.

[dragontamer]

You mean... the Japanese Yen?

Nintendo and Sony posting record losses as the Yen continues to get stronger and stronger. The $200 Wii console sold the best in 2010 and 2011, but because the Yen deflated so much Nintendo lost money on the USD -> Yen conversion and overall didn't do so well.

[deelowe]

Savings accounts don't beat inflation. No guaranteed and insured investment does to my knowledge(if you find one that's not a ponzi scheme, let me know). If savings accounts were paying out double digit % point gains, you can bet your ass people would be shoveling money into the accounts and not cashing out.

[gibybo]

They aren't beating inflation right now, but historically they have. ~5 years ago interest rates on savings accounts were roughly 5% and inflation was 3-4%. Empirically, people actually saved less during that time (although there were many other confounding factors).

[deelowe]

Point taken, but we're still arguing apples and oranges. Savings accounts historically maybe earned a percent or two above inflation. There's very little incentive to just let money sit in a savings account at those rates. Even extremely low risk investments are better.

[Andrew_Quentin]

Where does an investment get its value from? If saving gives me 3% but investing 5%, how does the deflationary nature of the currency change these two numbers? Surely investing gives a greater return as value is created regardless of whether the economy is inflationary or deflationary. You know, we have only had pure fiat money for the past 40 years. Before the we advanced from the dark ages to the 21st century with a deflationary system.

[Nursie]

Most savings accounts pay under the rate of inflation, and rely on someone (usually a bank) being willing to pay you that rate to get you to give them your money. Presumably the utility they derive from this makes it profitable for them.

BTC on the other hand, if we reach a steady deflationary state, beats the rate of deflation by definition, and just by you sitting on it. Slightly different situation.

--edit-- Also see here - http://eprint.iacr.org/2012/584.pdf It seems the ~80% of bitcoin are long-term dormant, so people are just holding on to them, regardless of the reason.

[jvm]

Yeah parent would have been precise referring to the low volatility rather than the inflation of fiat money.