Bitcoin Deflation can cause economic problems?

[freebitcoinwin]

It is true that deflation has traditionally been associated with economic problems, but there is no reason to think that this will be a problem for Bitcoin.
Right now in the United States, salaries, loan payments, rents , ect.. are priced in U.S. dollars. As a result, if the value of the dollar rises unexpectedly, can cause severe economic distortions. Unable to cut wages, trouble making payrolls. Unable to renegotiate their debts, homeowners have trouble making paying their mortgage payments.  The result is a recession.

Hardly anyone uses Bitcoin as a unit of account. You'd be insane to sign a contract promising to repay a loan of 100 BTC in 10 years or to take a job where your salary was priced in bitcoins. Even the Bitcoin Orrganization, which pays its employees in bitcoins, still sets its employees' salaries in dollars, converting employees' salaries into the corresponding number of bitcoins on each payday. As a result,  volatility in the value of bitcoins don't cause  economic disruptions that fluctuations in the value of traditional currencies do.

[MicroGuy]

Altcoins to the rescue! 

http://www.youtube.com/watch?v=sE1huPYerp0

[NickPortland]

Bitcoin is devaluing compared to USD and EUR, there's no deflation involved

[freebitcoinwin]

Bitcoin is devaluing compared to USD and EUR, there's no deflation involved

Was talking in long terms

[pungopete468]

The gold standard's problem wasn't the deflationary nature of gold itself...

The weights and balances system was constantly being manipulated around the world causing the debasement of currency. This caused mass hoarding because the old coins were sure to contain more gold than the new ones which would increase their value over time.

Deflation was an issue with gold coinage, not so much raw elemental gold as gold is still inflationary (more gold is available within the earth and mining is still returning additional gold mass.)

Bitcoin won't have the same problems that gold had because it can't be debased like a gold coin...

Bitcoin is unprecedented; you can't base a Bitcoin standard economy on previous gold standard economies because of the major differences between them...

[pera]

Deflation is associated with economic problems only and only because currencies are traditionally inflationary.

Every time I hear someone from the Federal Reserve or some Bank saying that a deflationary currency is bad for the economy I feel they are being (oh surprise) really hypocrites since they are not using a currency as they own storage of value, but probably some deflationary asset (eg real estates), while on the other side most people (for several different reasons) can't do the same.

fuck with the status quo rules and theories, don't ever trust anything they say!

[CryptoPanda]

Yeah deflation leads to people actually getting richer not poorer by the day and that's quite a problem for the economic system of the governments. But it's good for the people....

[kkaspar]

Yeah deflation leads to people actually getting richer not poorer by the day and that's quite a problem for the economic system of the governments. But it's good for the people....

Your opinion represents the opinion of many who have absolutely no clue about finance and economics.
To you it seems simple, let's just make money so it gains value, so everyone can just get rich while sitting on their ass doing nothing. People like this are always looking for new ways how to get rich while doing absolutely nothing that matters. But people like that rarely get rich, because they are unable to make a connection between hard work and wealth.

Deflation would only work if the entire financial system would be heavily regulated with strict rules, to avoid senseless hoarding that will cause instability. Free market and deflation combination only motivates people to do absolutely nothing. Just sit on your ass, holding your money and get rich in the process. That means that the entire society will get motivated to invent less, to produce less and do less in general. That actually means that everyone are getting poorer not richer, because money doesn't mean wealth, but the value that money represents, means wealth. When people do less, then there is slower economy and less wealth for everyone.
The society needs to see money as an intermediate tool to be used to trade wealth. It's idiotic to see money as an investment itself, not just a tool for carrying out investments

I think that this is the main reason why bitcoin won't ever be an usable everyday currency. The future is in cryptocurrencies and privatized monetary systems in general. Bitcoin itself is just a complex gambling platform, because it can't offer price stability, that is the main quality factor of an currency.
The deflative nature of bitcoin is effective in attracting hoards of people who are looking for get-rich-quick schemes, but it makes it unattractive as an practical financial tool

[pungopete468]

Yeah deflation leads to people actually getting richer not poorer by the day and that's quite a problem for the economic system of the governments. But it's good for the people....

Your opinion represents the opinion of many who have absolutely no clue about finance and economics.
To you it seems simple, let's just make money so it gains value, so everyone can just get rich while sitting on their ass doing nothing. People like this are always looking for new ways how to get rich while doing absolutely nothing that matters. But people like that rarely get rich, because they are unable to make a connection between hard work and wealth.

Deflation would only work if the entire financial system would be heavily regulated with strict rules, to avoid senseless hoarding that will cause instability. Free market and deflation combination only motivates people to do absolutely nothing. Just sit on your ass, holding your money and get rich in the process. That means that the entire society will get motivated to invent less, to produce less and do less in general. That actually means that everyone are getting poorer not richer, because money doesn't mean wealth, but the value that money represents, means wealth. When people do less, then there is slower economy and less wealth for everyone.
The society needs to see money as an intermediate tool to be used to trade wealth. It's idiotic to see money as an investment itself, not just a tool for carrying out investments

I think that this is the main reason why bitcoin won't ever be an usable everyday currency. The future is in cryptocurrencies and privatized monetary systems in general. Bitcoin itself is just a complex gambling platform, because it can't offer price stability, that is the main quality factor of an currency.
The deflative nature of bitcoin is effective in attracting hoards of people who are looking for get-rich-quick schemes, but it makes it unattractive as an practical financial tool

You are correct in most of what you said up until the middle and last portion...

- Bitcoin can't be debased; unlike gold where the treasury reduces the actual amount of gold in each coin over time the amount of 1 Bitcoin is a constant...
- Coinage was hoarded because the value didn't depend on the volume of trade in actual coins; rather the content of precious metal in each coin by weight.
- Each time a coin was debased by lowering the amounts of precious metal, the general user lost purchasing power. This caused a situation where you have a loser, a winner, and a motive for debasing currency.
- With Bitcoin there is no incentive to hoard once the market usage has saturated. 1 Bitcoin will be worth 1 Bitcoin permanently. Under the gold standard the hoarding was encouraged by the differential of value between older coinage and newer coinage.
- Bitcoin will be able to accomplish what the gold standard wished to accomplish because it's value within the protocol is immutable.

These are differences which should be considered. If people hoard BTC in the future they actually increase the wealth of other users who can then invest in progress.

[bitzox]

Bitcoin is devaluing compared to USD and EUR, there's no deflation involved

Was talking in long terms

If you're really talking long term than you have to ignore short term volatility. Bitcoin's price relative to fiat is volatile because its so young. Trying to deal with that problem and the deflation issue, which wont actually be a problem until many years from now, will get you nowhere.

Deflation is not a bad thing, most currencies were mildly deflationary up until the last 150 years or so. Recessions were more frequent but shorter and of lower magnitude. I would recommend reading the first few sections of "A Histroy of Money and Banking", it talks about deflationary systems that worked extremely well in addition to free banking systems, where banks could issue their own currency (similar to bitcoin in that we now have currency competition within countries). There is a lot of economic theory that says that deflation is not bad in an of itself readily available on Google.

The problem lies in the fact that we are so used to inflationary currencies that our economic system needs this inflation to survive. Without inflation governments cannot pay their massive debts. We live in a credit based economy where outstanding debt far exceeds the money supply. Think of it this way, people in debt love inflation, because money they owe is worth less and less as time progresses. Banks account for this via the interest rate they charge on loans. Because we live in a system where most people are in debt, a deflationary currency could be problematic. However, if you aren't in debt its a great system, one that doesn't penalize you for saving money (as is the case currently).

Also take a look at this article http://globaleconomicanalysis.blogspot.com/2014/02/deflation-theory-reality-check-why.html

which pretty much obliterates the idea that deflation results in consumers holding off purchases and thus crashing the economy. All in all both inflationary and deflationary systems have drawbacks, bitcoin simply represents the first instance in history where consumers can put their faith in a currency that can never be inflated.

[Ix]

if the value of the dollar rises unexpectedly, can cause severe economic distortions. Unable to cut wages, trouble making payrolls. Unable to renegotiate their debts, homeowners have trouble making paying their mortgage payments.

You have ironically described the problems of deflation, not inflation.

it talks about deflationary systems that worked extremely well in addition to free banking systems, where banks could issue their own currency

It's really not a deflationary system if banks are issuing fiat right next to it, convertible or not. In the same vein, one could argue bitcoin will never end up being particularly deflationary because it will have competition (akin to free banking) with other cryptocurrencies that will be issuing more currency. Network effect? Watch how quickly people leave in droves during deflationary episodes when/if bitcoin is ubiquitous. If acquiring bitcoin becomes more difficult, people will acquire something else to pay for goods and services.

The problem lies in the fact that we are so used to inflationary currencies that our economic system needs this inflation to survive.

Society needs this system. Although it has always been corrupted, inflationary currencies are better to the alternatives where the people are at the mercy of the rich kings. Bankers have only been able to invent new ways to lend money because people were willing to borrow it. Productive and intelligent people can't produce and innovate without borrowing money in the vast majority of cases.

Without inflation governments cannot pay their massive debts. We live in a credit based economy where outstanding debt far exceeds the money supply. Think of it this way, people in debt love inflation, because money they owe is worth less and less as time progresses.

Government debt, business debt, and personal debt are three very different things with three very different causes and effects. There is way too much to go on about that, but don't roll them all together in a neat little ball, wrap it with a bow, and call it a day.