I guess that's kind of my point. Currently there is no way to divide up a millionth of a penny. Also psychologically I'd rather have $5 than 5/1000 of one.

Also you didn't address my point that rather quickly there would be people with no money. If you did subdivide the pennies I don't see how that's any different than printing more money. It's just what side of the decimal point you want to be on.

Subdividing pennies might be more dangerous actually because presumably you could only do it by a factor of 10. Would we say that on March 31st a dollar is worth 100 pennies but on April 1st its worth 150? Or would we just add another layer of 1000 micro pennies equal one penny? At least with current inflation they can introduce new dollars as they need so inflation is controllable. In your version its not controllable because its mandated by access to the currency itself.

Huh? The dollar would still be worth 100 pennies, it's just that you could also use micropennies (worth 10^-6 pennies) to pay for stuff. The ratio doesn't change, the total amount of dollars / pennies / micropennies doesn't change; micropennies are a convenience that allows us to write "5 up" instead of "0.000005 p".

it's turns out people don't like to get a pay-cut on a regular basis.

this is a fact of human psychology that's a real barrier to your system, and unless it is addressed, bitcoin will continue to fail.

People don't like to work either, and yet they do it.

Yes, this is the only real argument against deflation: people tend to look at the nominal prices instead of the real ones. (See also Mark Twain on the subject in the Yankee at King Arthur's Court.) This is a problem because, as the money increases in value, business would want to decrease the nominal salaries, and people would object to that.