The trade price in US dollars would likely go down as the buying power of the dollar increased, but the actual buying power of those same bitcoins wouldn't likely be significantly effected in the same way. Keep in mind that a major stock crash, like the one in 1929 is highly deflationary; as is the destruction of debt. (Debts that turn bad are written off as uncollectable, or discharged in bankruptcy; both events result in the effective reduction of available liquidity, which is deflationary by defintion)
Of course you are correct, but this is not 1929 and the U.S. is no longer on the gold standard. We almost know for certain what would happen because it already happened in 2008. The Fed (central bank) will create trillions of dollars out of nothing and go on a buying spree, the government will make massive bail-outs, Keynesian economists will provide cover for the whole operation and prices of everything (including bitcoin) will go up.
It's not speculation. It's history. The fact that they got away with it is what guarantees that they will do it again.
There was plenty of printing of unbacked paper money during the great depression as well. This is what lead to the confiscation of private gold stocks followed by the revaluation of the gold standard from $22 to $35 per ounce in 1933. Leaving the gold standard just makes all this crap somewhat less of a fraud than pretending that we actually operated as if we were on a gold standard.
In short, we are both correct. The deflationary events can, and have so far since 2008, outpace the rate at which the Federal Reserve bank is willing to debase the dollar despite tehir willingess to do quite a bit of it. Keep in mind that the Federal Reserve serves the member banks, not the US government nor particular politcos. If they debase too fast, the public will lose trust in the value of the US dollar, and then a hyperinflationary death of the currrency will bring a rapid end to their 100 year long con game. The bankers will never do this unless forced into it by politics, because hyperinflation is always and everywhere triggered by a political event.
I largely agree with you, but politics is overwhelmingly in the direction of easy money. And it will be printed. Inflation will be kept in check by lowering commodity prices as the emerging markets sink back into the third world, consuming less commodities as they do so, but when the Eurozone and other trading partners ramp up their own printing presses, American exporters will clamor for the Fed to do likewise. American debtors, which is most of the public, will want to keep interest rates near zero and the government, the biggest debtor of all, will be happy to agree. Even the banks will scream for more printing as their debtors default and the value of their collateral crashes. The possibility of bank runs will terrify them-Just like in 2008.
Injecting liquidity is the only way to prolong the inevitable collapse of an insolvent system. But I really don't think it will be Americans who will most need an inflation hedge. The dollar is shitty, but among national currencies, it's the leper with the most toes.
