[thornkin]

That is only true if the loss is actually permanent. If the system comes to assume that there are only 10,000,000 coins in circulation, what happens if a substantial portion of the "lost" 11,000,000 shows back up? Now you just had a 50% inflation overnight...

Of course, the chance that huge amounts are lost together is quite low.

[scotty79]

I don't think you could double the amount of bitcoins overnight. And even if you could I doubt that it would lead to rapid inflation. Rather gradual as additional bitcoins spread throughout the economy.