Greedier people will invest their bitcoins. People who want a safe investment will just hold onto them.
Perhaps.
Although my university studies wasn't en economics, I did manage to pick up a thing or two from those classes.
The big problem with a deflationary economic model is that your money will be worth more tomorrow, we all know this, and this does works as a break for the economy, right.
Very few people will risk their money if they don't have to. There will be some, but most investments will cease.
Most consumers will "wait" with their purchases of the non essential things. Everything will be cheaper tomorrow.
Business will fail since people won't buy there, or they will downsize. Investors will see this and hold on to their money harder. More business will fail to get funding and end up in trouble.
From an environmental perspective it might not be bad if people held on to their stuff longer, but economically it's quite bad.
If you have a different truth I'd love to hear it, but in essence this is mainstream economics, and it does seem quite reasonable.
Business will fail? but won't that reduce the supply of goods driving prices back up?
In a fixed money supply system, deflation is a consequence of growth; the economy is more efficient at creating goods, so prices go down. This is good!
In our fractional reserve system, the banks multiply by 10 the money supply. When there is a recession they stop lending and the money supply can plummet back to 1x. This may be a very disruptive situation and some call it a spiral.
The value of the money supply roughly equals the value of goods that can be bought with it. If there is deflation and the economy is growing, then who cares, great. If there is deflation and the economy is contracting then deflation will stop, people will spend more, shazam! It's a self stabilizing system.
In any case, the problem with deflation is entirely attributable to the fractional reserve system. Inflation is just an excuse for big government. That's it.
