Fear Not Deflation! And a Follow-up Thought

I recently published episode #006 of Dark News, a reading of Jon Matonis’ article on deflation in currencies, and crypto-currencies in particular.

A viewer posted this thought-provoking comment, to which I responded, and I wanted to share the two comments more broadly.

Chris Johnson:

First off, I’m a huge advocator for bitcoin. Secondly, Kristov, I have seen all of your videos from one’s here on the WCN to Bitcoin Group etc and I’m a huge fan and would like to thank you for all you have contributed.

However, I see this video as very misleading. Mainly in terms of loans. You say “near 0% interest rate loans would be possible” as though it were a good thing.

Why would a bank, or anybody, take on the risk of issuing a loan if it their profit margin over saving bitcoin would be so low? Also, what if the value increase of bitcoins is in the realm of 10% or more, wouldn’t that mean loans need to be extremely expensive for the debtor in order for banks etc to be financially motivated to issue loans rather than to save? What if the value of bitcoin increases more than expected, leaving the debtor with the very likely problem that the value of their debt has risen to a point where it cannot be paid back?

As far as I can see, lending money in a bitcoin economy will continue to be a huge problem.

My reply:

Those are some interesting points. This was a reading of an article by economist Jon Matonis (@jonmatonis on Twitter) who would be better equipped to respond to that critique — I’m no economist.

I imagine that there might be less lending in a crypto-economy than there currently is. Good. There’s too much toxic debt out there. The kinds of lending that we really want are not so people can puchase houses they can’t afford, but to start new companies and ventures that add to the overall wealth of humanity. The empirical evidence so far is that venture capitalists are overwhelmingly willing to invest in Bitcoin-based businesses rather than just purchasing bitcoin as a speculative asset, so I wonder the degree to which these theoretical criticisms of deflation are applicable to the economy of the future.