If Bitcoin becomes mainstream as it is, banks will be gone. They barely pay enough to cover inflation now, which means they won't be competitive with simply hoarding the money. But with banks, there goes our industries.
This is what I used to think.
But people borrow at APRs dramatically above inflation, so Savings & Loans should still be workable organizations. Also, assuming a constant money supply, deflation is caused by an increase in value being traded in the economy, which means that
investment will outpace deflation on average (since some money is always being spent on people's day-to-day consumption).
And finally... well, how do you know BTC won't inflate? I mean, sure, the physical number of BTC in circulation is 21 million in saecula saeculorum, but there's nothing about the Bitcoin network that prevents fractional reserve banking (which, QE3 shenanigans aside, is the "normal" mode of inflation today) other than checking accounts being less useful than they once were and the lack of an FDIC-style lender of last resort to cover the banks' butts.
Oh, and state debt would be gone the same way: no state cannot afford to pay a debt which is increasing in value instead of devaluating. Just explain me, you fine keynesian, how we will survive without the state's ability to spend in deficit (since they wouldn't be able to print as well, of course).
The government's debt is already increasing in value - it's called the interest rate. A deflating currency just means more tax money has to be set aside to pay interest (until the budget becomes balanced).
