Def made me think alot. Seems you can replace your entire argument with crypto. Money printer goes brrr, money gets locked in crypto, does nothing for the economy, leading to massive inequality. Crypto can be though of as "Savings" in your analogy. BTC might cause a economic meltdown if $10T gets locked in'Savings'.
Which is already happening.
Financial institutions are already extending credit (aka 'printing money') based on bitcoin and other cryptocoin collateral.
Bitcoin is not necessarily deflationary.
>we prevented the extension of credit based on bitcoin collateral...
>Which is already happening.
Is in direct contradiction to:
>Financial institutions are already extending credit...
Regardless, the amount of bitcoin is set to be capped and finite - therefore unless this changes it is inherently deflationary. Aside from mining out the remaining unmined bitcoin, no institution is "extending credit" (aka 'printing') bitcoin, they're extending credit via (as you mentioned): other collateral.
You can't make more bitcoin, but if you extend credit to someone based on the bitcoin they have, that's CREATING NEW MONEY.
In that sense, bitcoin is like gold.
In the gold standard, the supply of gold was fixes, but the supply of dollars was not. Because bank's create money when they allow you to borrow.
For bitcoin to be truly deflationary, you would have to prevent all financial institutions from extending credit
Bitcoin is EVENTUALLY deflationary. Right now, about 900 coins are created every day leading to inflation of ~$45M a day that buying pressure needs to eat up. Every four years that inflation is cut in half, but it's still inflationary.
Then again, the potentially stronger network/memetic effects of cryptocoins, along with the amplification factor from markets being synchronized through instant all-encompassing global communications nowadays might make them dangerous to the economy without government involvement. We saw how much people can get hypnotized by these things during the Gamestop episode. I don't think unsophisticated investors' hoarding is enough to cause big problems but it is a bit unsettling that Tesla jumped on the cryptocoin train. If enough businesses follow suit, you get into scary territory. Last time it lead to Hitler and WWII. It makes me second guess my cybertruck reservation. I was on board partly because of Musk's audacious and epic attempts to bring humanity forward. This is a non negligible risk of going in the opposite direction of creating economic carnage that leads to new Hitlers (but with nukes).
"The Great Depression, exacerbated by Brüning's policy of deflation, led to a surge in unemployment.[8] On 30 January 1933, Hindenburg appointed Adolf Hitler as Chancellor at the head of a coalition government. "
or
"In 1933, the American economist Irving Fisher developed the theory of debt deflation. He explained that a deflation causes a decline of profits, asset prices and a still greater decline in the net worth of businesses. Even healthy companies, therefore, may appear over-indebted and facing bankruptcy.[59] The consensus today is that Brüning's policies exacerbated the German economic crisis and the population's growing frustration with democracy, contributing enormously to the increase in support for Hitler's NSDAP."
https://en.wikipedia.org/wiki/Weimar_Republic#Br%C3%BCning's...
Now the above paragraph puts emphasis on businesses with debt but even non-indebted businesses can get caught in these currents if they are put in a position where it's more advantageous to hoard currency than to invest in maintaining or growing production.
It's a fairly low probability that cryptocoins could create this kind of disastrous Nash equilibrium without the involvement of a powerful central bank. However, when I see the fervor in parts of the cryptocurrency movement and the fact that businesses are starting to hoard large amounts, I wonder...
And isn’t that the main way normal people’s savings can be tied to “real stuff?”
If you add up all the IOUs in the economy, financial assets are cancelled by financial liabilities and what remains is real stuff which in economics is called "investment". The nomenclature can be a bit confusing because in finance they use the same word to mean the contract, the claim or the IOU not the physical asset.
The equation for GDP is Consumption plus Investment (sometimes government consumption and investment and exports are broken out). Investment is not financial assets or money or bonds which all cancel out at the global level. Investment means factories built, equipment built, less tangible things like knowledge and intellectual property count too in theory but are sometimes hard to measure. It's important to have a good level of investment. Promise hoarding can crowd it out when things get too speculative. The economy can get into a bad Nash equilibrium where people are chasing IOUs instead of producing real value.
The thing is, stable money that predictably loses value is a great thing to have for the economy as it allows people to negotiate contracts and conduct business in a predictable manner. Medium of account, medium of exchange etc. Money being a store of value is an unfortunate consequence of it being a medium of exchange that often has to be mitigated. Fiat should never be widely used for saving. Money is just an IOU. When everyone's savings are IOUs, on average everybody indirectly owes everybody else their savings. Instead, savings should be tied to real stuff such as businesses, inventory, production capacity etc. not just all be pure promises. When too many people hoard pure promises and all believe that it's true wealth, bad things happens.
Hard currencies while not good for conducting business since they are too unstable might be better as stores of value as they fluctuate and have negative returns when they should so tend to not crowd out other asset markets as much as government stabilized currencies do when inflation is not high enough. Just make sure the government does not try to stabilize hard currencies. That caused the great depression.