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> The sorts of sharp, catastrophic deflations that took hold in 2008 (or 1929 for that matter) are always caused by the bursting of a preceding credit bubble, u
by SeanLuke 13y ago
> The sorts of sharp, catastrophic deflations that took hold in 2008 (or 1929 for that matter) are always caused by the bursting of a preceding credit bubble, usually created by central bank policy. I don't see how that kind of bubble can happen in Bitcoin. So the argument that "Bitcoin is deflationary" is true as far as it goes, but that doesn't mean that a Bitcoin-based economy would necessarily look exactly like, say, the Depression-era U.S.
Bitcoin has already had catastrophic deflations: factors of two in less than a week and factors of three in less than a month. And equally spectacular speculative crashes. The reason for this is really very simple: there's no one at the tiller, printing money to tamp down the speculation.
The kind of deflation I'm talking about -- and I think everyone on HN is talking about -- is the kind associated with speculation. If Bitcoin can't discourage speculation, and it appears by design it cannot, it is dead in the water.
- kalleboo 13y ago> The reason for this is really very simple: there's no one at the tiller, printing money to tamp down the speculation So who's printing gold to temp down the speculation in that? Or what makes gold different so that it doesn't need a "central bank"?
- eli_gottlieb 13y agoGold isn't different. Bitcoin is actually behaving a whole lot like gold. But, here's the thing: few people have ever suggested that we actually do our regular, day-to-day finances in market-value bullion gold. Instead, it's just considered a good way to back or hedge against actual, managed currencies. Bitcoin stands a chance, IMHO, if people get off their ridiculous Austrian Economics shtick and start treating it similarly to gold: Bitcoins as hedge against financial shenanigans in other currencies rather than Bitcoins as a way of paying your bar tab.