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Deflation is not a problem for Bitcoin
Falling prices sound like a good thing, right? Well, they are, generally. Technological deflation is the most obvious example of good deflation. Laptops, cellphones, and smartwatches get cheaper over time. That’s not a bad thing. People don’t just stop consuming things because things are cheaper. Why? Because of time preferences. I’m not going to stop drinking coffee in the morning even if it will be cheaper in a year from now. That would be absurd, yet some economists will tell you that with a straight face.
Bad deflation
There is a form of deflation that is not good for a large segment of the population: debt deflation. Debt and deflation are a dangerous cocktail. The real value of debt goes up when prices fall. Therefore, deflation is bad for debtors.
However, this is only a problem under government fiat money. Why?
Under government fiat money, you get huge credit bubbles created by the Federal Reserve. This can’t go on forever, so you either get austerity or austerity through inflation. The Federal Reserve would rather keep “printing money” instead of letting the economy fix itself. The problem is that there is no such thing as a…
