Falling prices sound like a good thing, but they’re not.
When prices fall, people put off buying things. And when people put off buying things, companies put off investing. And then the economy slumps—and keeps slumping. Even worse, people are stuck trying to pay back debts that don’t fall with wages that do. So bankruptcies pile up, and so do bank losses. That makes people too scared to borrow, and banks too scared to lend, which only makes prices fall even more.
This self-perpetuating cycle of doom is what sunk the global economy in the 1930s, and what, to a lesser extent, has sunk Japan since the 1990s. And it’s what has been sinking us since 2008, though this time central banks have at least kept prices from falling, just barely.
Now, it doesn’t make much sense, but there’s actually a currency designed to create these kind of economic calamities. A currency designed for deflation. That’s Bitcoin, the virtual currency you can theoretically use to buy things online. See, there’s a predetermined number of bitcoins that will only grow at a low rate until 2040—and then stop. This artificial scarcity means that the dollar value of a bitcoin should go up considerably. And it has. In just the last year, it’s gone up something like 64 times. That’s enough that “Bitcoin millionaires” are now a thing.
via The Atlantic.