1) Only occurs because there has been massive layoffs and a decrease in consumer demand. 2) Causes producers to shrink investment --> Why produce next period when the price is only going to fall? 3) A period of deflation will cause further job losses which will cause further deflation (deflationary spiral). 4) The real value of debt increases.
Nothing wrong with deflation, so long as productivity remain strong and employment high. The USA was in a deflationary environment from 1800-1913, and BOOOMED....
Deflation has its good aspects. Allows "things" to adjust toward REAL value, increases the buying power of savings, allows people to buy a house or car who couldn't previously. Inflation is "bad" ONLY for governments..... who run on deficits.
Deflation is a natural correction to excess money, excess credit, excess and unsustainable economic activity. There would be no deflation unless there was inflation first... and that's a function of government and money manipulation.
If much of your economy is a service sector/asset valuation dependent ponzi scheme... Deflation is really, really bad. But no worries - in a fiat world, there is a solution - you just print away money and shift the costs to those that are last to get that freshly printed money - the bottom 90% of the population. Sounds like taxation without representation - or worse yet, like theft. Again, no worries, they won't get angry because the vast majority of them have no idea what is going on.