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Why is deflation bad?

• wpietri 9y ago
  Deflation is bad for a currency because it means the currency will be worth more later. People hold on to things that they think will be more later. Currency, though, should be something people are comfortable spending. See here, for example, for a prominent Bitcoin advocate explaining that he no longer uses it as a currency: http://avc.com/2017/08/store-of-value-vs-payment-system/ http://avc.com/2017/08/store-of-value-vs-payment-system/ This is especially a problem when a currency is used by a lot of people. It discourages economic activity and increases the value of debt. Imagine, for example, that you had taken out a Bitcoin-denominated car loan on Jan 1 2016 with a monthly payment of 1 BTC. That's about $440 at the time, or 15 hours at the median US wage. Now you'd have to work 40x as much to cover the loan payment, or about 20 hours a day just for your car. Meaning you would have been driven into bankruptcy. Luckily for its users, Bitcoin never really took off as a currency, so their debts are in much more stable national currencies. But as you see with Fred Wilson, many experience sharp regret for the times they did use it as a currency.