There is a hard limit to the amount of Bitcoins however.
Countries have done this many times by dropping zeros when their currencies devalue, etc. The whole 'there are a fixed number of bitcoins' makes no sense if you can just divide the currency unit by 1 million and call the new currency micro bit coin.
Divisibility is not the issue, dilution is.
Deflation is bad because then you can sit on btc (like people are now) and the exchange rate goes up because they gain in scarcity. They aren't really useful as a unit of exchange then, there was a story a day or two ago about how btc (while improving) still has 1/3 the turnover rate of fiat market currencies because most people are holding them as an investment.
A part of that is that btc isn't widely circulated for exchange yet, and sitting on it instead of a savings account makes sense when the speculative market is going through the roof. So even if you wanted to spend it, you still have to translate it back into fiat currencies and use those right now.
Sure, they can be slit down and down, but Gold can too. The difference is you can mine more Gold. Not possible with Bitcoin.