Why such agreement that Deflationary currency is a bad thing

[jgm]

While that is true, you would be paying a 'one pizza loan' back with the number of Bitcoins that would now buy 60 pizzas. It is the same deal as if you were doing dollar conversions. A mortgage, 10 years later, will be the amount of BTC that could now buy two of the very same home you borrowed for. See how borrowing is just a bad deal with deflation? People would start living within their means and spending/GDP would plummet. The current power structure would be upended (financially speaking) and a new system of economics/commerce would emerge.

It really depends on how stable Bitcoin becomes as a world currency.  The whole 1BTC now == 60BTC later thing might look right now, but at some point I'd hope that the BTC:USD price would stabilize, either because BTC becomes big enough that the daily purchases and sales don't affect the price that much (more likely) or because governments drop their own currency in favour of BTC so there is no continual rebasing required (very unlikely but wouldn't it be nice?)

[dorei]

Deflation is "bad" in the way that it postpones consumption.

Imagine you wanted to buy a new TV set and you knew that next month its price would be lower, it would be quite rational for you to postpone your shopping until next month.
But then again, next month, you would knew that the price will drop more if you wait more...

Deflation is good for hoarding, bad for consumption whereas
Inflation is good for consumption, bad for hoarding.

[Billy3]

Deflation is "bad" in the way that it postpones consumption.

Imagine you wanted to buy a new TV set and you knew that next month its price would be lower, it would be quite rational for you to postpone your shopping until next month.
But then again, next month, you would knew that the price will drop more if you wait more...

Deflation is good for hoarding, bad for consumption whereas
Inflation is good for consumption, bad for hoarding.

Well said. The 'bad' is in terms of our current paradigm.

Over-consumption is encouraged by 5% inflation and 1% risk free returns on treasuries. I wonder if the world wouldn't be a better place with only BTC as currency. Saving would soar (hoarding) and we would all live within our means (no debt). Deflation would become a function of population increases and productivity gains; others' successes (e.g. new home built, new company, etc.) would make all BTC holders wealthier incrementally and pro rata.

[Wekkel]

Deflation is "bad" in the way that it postpones consumption.

Imagine you wanted to buy a new TV set and you knew that next month its price would be lower, it would be quite rational for you to postpone your shopping until next month.
But then again, next month, you would knew that the price will drop more if you wait more...

Deflation is good for hoarding, bad for consumption whereas
Inflation is good for consumption, bad for hoarding.

You are spreading the fallacy again. Of course I would wait a month if the price of that TV is expected to be 100% then. Probably the same with 10% a month price decrease. But now let's assume that Bitcoin matured and reaches a stable stadium. The annual deflation is about 2%

Would you hoard for 80 years of your life and never ever buy that TV until you die or will you finally put this bad thinking out of your system and realise that the only thing of value you have is : time. No one gets more time per second than anyone else. People will spend if deflation is mild. They spend now as well while technology improves by leaps every year. People cannot and will not wait their whole life to get a piece of the action.

But fair enough, if BTC remains there, our points will be tested and tried and there is nothing we can do about it  

[M2NY]

People will spend if deflation is mild. They spend now as well while technology improves by leaps every year. People cannot and will not wait their whole life to get a piece of the action.

Very good point there. Why would I buy a new smartphone if I know there will be a better generation within just half a year? Because I need a new smartphone. All things which are considered necessary with our standard of life will still be bought while having a mild deflation. 

[tinytiger]

Some thoughts why Bitcoins don't need a central banking system and how the deflation problem could be solved:

http://wordsinthecloud.blogspot.de/2013/04/do-bitcoins-need-central-banking-system.html

[bitchess]

When I first heard about bitcoins, my biggest concern was that the system stops creating BTC supply at 21 million.  This implies future deflation because prices are determined by the supply and demand of a currency.   If supply of the currency is flat while demand is growing, you get a massive deflation.  Deflation means that your BTC will buy more next year than it does this year.  For example, this means that a bitcoin today can buy one apple but next year can buy two apples. 

Deflation is toxic to an economy because it promotes people to save more/invest less.  This creates a downward spiral because when people save more/invest less, there is no money flow to economic growth.

This is why the Fed is so actively printing money with QE etc. to prevent a deflationary spiral for the US dollar.

In BTC's case, the only long term saving grace is if it can establish the fractional reserve system.  This would allow regulated entities (banks) to lend BTC to each other and continue increasing the BTC supply

[Lethn]

That simply isn't true, most people save to buy something they can't afford, what an inflationary system does is get rid of their savings and force them to get a loan which in turn means they have to work it off longer than if they just saved up, also Bitcoin is designed to be deflationary and the value of it is rising far faster than in a year, you'd have to have ignored all historical prices to have come to your conclusion.

[bitchess]

That simply isn't true, most people save to buy something they can't afford, what an inflationary system does is get rid of their savings and force them to get a loan which in turn means they have to work it off longer than if they just saved up, also Bitcoin is designed to be deflationary and the value of it is rising far faster than in a year, you'd have to have ignored all historical prices to have come to your conclusion.

I respect your hero status, but with my economics background, I am just echoing what major economists have communicated about the drawbacks of deflation.  In my opinion, economists and central banks so fear this situation that they create a margin of error by targeting 2+% inflation.

Please respectfully read this wiki:
http://en.wikipedia.org/wiki/Deflation#Deflationary_spiral

[Impaler]

Everyone here can agree that inflation pick the pocket of the Saver (which I why you crazy Austrian zealots are so vehemently opposed to it).  Guess what Deflation dose, it picks the pocket of the PRODUCER.  How much do you think someone will produce when they are being robbed for doing it?  And not just a little, it's like 1000% a year deflation here in BTC land, their is virtually no legal business activity that can make enough profit to overcome that kind of deflation rate.  You may not like the Flood of inflation or the biblical flood of hyper-inflation will certainly kill an economy but that's no reason to wish for the Drought of deflation or this fly-into-the-sun hyper-deflation, the mean is ware the virtue lays.

[bitdwarf]

It can become a spiral of death.

Let's say on Day #1 I sell Stuff for BTC100. You decide to wait because on Day #2 BTC10 will buy as much Stuff as BTC100 on Day #1. But I assume that too, so I give up, sell for BTC10 and postpone my purchases too. But then you still decide to wait, because it's still true that on Day #2 BTC1 will buy as much Stuff as BTC10 on Day #1.

Day #2 comes and prices have deflated to 1/10, but I still haven't sold any Stuff. So I drop my price again to BTC1. It sucks but as long as I believe on Day #3 BTC1 will buy the same as BTC100 on Day #1, I'm not that bad.

This keeps going on till I say, eff it! It's more profitable to rebrand myself as a luxury product. On Day #4 I'll sell the same Stuff for BTC100 again. I only need to sell 1 Stuff to compensate for losing 99 cheap sales.

So Day #4 comes and only a bunch of hoarders can buy Stuff. I fire most of my workers because now I only need to produce 1/100 of Stuff. There's also a lot less Stuff being produced, so non-rich people has to buy Cheapo instead.

Then you can repeat the same for Cheapo.

[bitdwarf]

Point in case, if national economics departments accounted for real estate purchase prices in their price indexes, a lot of the countries in the current crisis would turn out to be massively deflationary.

http://en.wikipedia.org/wiki/United_States_Consumer_Price_Index#The_hidden_change_in_prices_of_housing

[bitchess]

Everyone here can agree that inflation pick the pocket of the Saver (which I why you crazy Austrian zealots are so vehemently opposed to it).  Guess what Deflation dose, it picks the pocket of the PRODUCER.  How much do you think someone will produce when they are being robbed for doing it?  And not just a little, it's like 1000% a year deflation here in BTC land, their is virtually no legal business activity that can make enough profit to overcome that kind of deflation rate.  You may not like the Flood of inflation or the biblical flood of hyper-inflation will certainly kill an economy but that's no reason to wish for the Drought of deflation or this fly-into-the-sun hyper-deflation, the mean is ware the virtue lays.

Can I make a couple points here... 

First let's clarify the definition of save.  If you "save" your $100 paycheck and invest in $100 google stock I don't consider this "save" (instead I would classify this as "invest" in the economy).  If you "save" and put it under your mattress I consider this "save".  The arbitrating logic of my definition of "save" is if you are "saving", you are decreasing the overall lending capacity of the overall economy.  This only occurs if you sit tight on the currency and don't allow some other person or person to use it.

On the other hand, if you don't "save", and "invest" or "loan", what this does is stimulate the economy overall.  It does so by increasing the money supply overall.  When people feel like their gold under their mattress is quickly losing value, they will pump it into value creating value and creating businesses.  This creates an overall positive to the real economy.

Going back to your comment, if you are a producer in a deflationary environment, you will also not sell your goods this year because it will be worth more in the future.  Why spend a fixed cost to produce this year when the profit for the same produce next year will be much more profitable?  Things will grind to a halt.

[Wekkel]

Things will grind to a halt.

What would a Bitcoin be worth then? Nothing, you could have guessed it yourself. Meanwhile, the earth kept spinning with a lot of people living in the real world wanting things now instead of never as thought out by a very clever but unpractical scientist. Perhaps in a study room people have no immediate wants and will postpone their purchases until they die, but real life works just the other way around.

Massive deflation is quite a ride (as is hyperinflation) but mild deflation is nothing to worry about. Nobody will postpone a purchase because it will be 1% cheaper next year while more than 1% of your expected years of life is gone by then. Of course, deflation is a big problem if you permitted a bubble to build up which market forces try to wipe out exactly by deflation. But deflation is not the problem then, but the solution of free market forces. The real problem is blowing that bubble in the first place. Economist who keep ignoring this, drive me crazy.

Bitcoin would not stop the economy from going on. Things will magically stabilise between consumption and savings, depending on everchanging preferences. The price of money will adapt, solving fluctuations in that balance. That's the way free markets are supposed to operate. Don't let the argument of deflation scare you from thinking about it more thoroughly.

[bitdwarf]

magically

[jago25_98]

The only valid line of reasoning for deflation as a problem is that it makes life easy and you get rusty.
Another argument that could be used... but isn't could be if it was referred to like a tax and the proceeds were used to defend the country making a bit less of an obvious theft.

Never believe this ridiculous crap that somehow taking money away from people makes us richer. All it can do is skew the stats short term as people panic to try to escape the threat by converting savings into houses, cars & debt, anything to shelter the abuse. Your common sense was right all along.

It doesn't stimulate an economy - it just creates an illusion of this in the short term as people scramble to escape the problem, moving into asset bubbles.

Some say that people hoard in deflation. Preparing and saving is a good thing to be encouraged! People still have to eat and live so they still have to spend those coins at some point.

The agreement we see everywhere is because we have had the idea of accepting inflation repeated to us for all our lives in the news and media. Eventually if we have no other viewpoint we come to believe it.

However, if we speak to locals when on holiday in high inflation countries we start to get a perspective - you've been lied to.

Watch out for the themes that are repeated again and again in the news. Notice how the volun on the TV goes up at news time. Look for the common themes (i.e common theme=family - for Paedos, gay rights, feminism) (common theme=violence, on tv,games,war,gun control). Now go the next step and tell me why. Then also you have to come to terms with it and know it's going to influence people... but you are too smart to go that way so let those young fools go to fight the good fight, let the women struggle balancing a career... and ignore all that and go your own way in success.

[bitdwarf]

Money is a promise of compensation.

Someone does something for you, you promise to do something similar for someone.

Deflation means the whole system has no honor and you must expect everybody to give less back. The less you give, the less is stolen.

Inflation means the system honors your action by making people give a little extra back. The more you give, the more you get.

Then you study the Prisoner's Dilemma and see that the first option sends the whole civilization back to the stone age, while the second maximizes progress. Actually, because the second strategy is fragile versus greed, the optimal strategy is to adjust it intelligently, giving less back to people that hoards and giving more back to people that gives more.

This used to matter a little when falling behind in progress made you a slave of foreign nuclear powers...

[townf]

Ideally a monetary system should be neither inflationary nor deflationary. As someone pointed out, in general, one hurts savers, the other hurts producers. Not only that, inflation or deflation doesn't hit every sector of an economy at the same time, so for example inflation would not only hurt savers, but earners also, as the cost of goods rise sooner than people's wages. It helps the ones who get to use the money sooner, like borrowers.

Inflation and deflation are two sides of the same coin so to speak. Both are bad because they change the value of money, and since an economy isn't a homogenous spread of purely equal roles, this change in the value of money up or down is going to unfairly hurt some sectors and help others. It's not like inflation hurts all players in an economy and deflation helps all players in an economy. It doesn't work like that.

The best way to maintain a stable money supply is to have it grow in proportion to the population.

[tinytiger]

When I first heard about bitcoins, my biggest concern was that the system stops creating BTC supply at 21 million.  This implies future deflation because prices are determined by the supply and demand of a currency.   If supply of the currency is flat while demand is growing, you get a massive deflation.  Deflation means that your BTC will buy more next year than it does this year.  For example, this means that a bitcoin today can buy one apple but next year can buy two apples.

I see the problem of a deflation spirale with BTC too but in my opinion there are a couple of reasons why with BTC this will not play out:

- BTC are not a government issued currency or the only currency used in an economy and never will be. So an increased exchange rate over time e.g. in relation to the USD will not be a problem for the economy because people can always go back to their local currencies if they despite the deflationary nature of the currencies. At least as long as we don't enter a phase of hyper inflation in the USD.
- In the future, BTC will have to compete with other crypto currencies. This will indirectly decrease the demand for BTC because there will be popular crypto currencies with similar properties (GoogleCoins, iDollar ?).
- In the area of payment, current payment solutions make it possible to buy something with BTC which can be cashed in the local currency in a matter of minutes, circumventing any developments in the exchange rate.
- When the exchange rate of BTC would go up too fast, the system would regulate itself for too many market players would fear a bubble and would start with panic selling. As seen around April 8, 2013.

Though I see that the exchange rate for BTC will generally go up in the future, I think that the self energizing effect that would lead to a deflation spirale will be compensated because of the reasons state above.

[tinytiger]

The best way to maintain a stable money supply is to have it grow in proportion to the population.

I like your idea but if your follow that line the money supply should not grow in proportion to the population but in proportion to the productivity which is a very different thing.