Prices of goods go down, but the price of existing debts doesn't, which is the big problem. I agree that the housing market is not the ideal example but we nee

Prices of goods go down, but the price of existing debts doesn't, which is the big problem. I agree that the housing market is not the ideal example but we need to look at debt in general when talking about deflation. In a deflationary setting, reduced lending reduces the speed that money moves around and depresses the economy. Business have trouble closing the book because falling prices of goods sold today are not enough to cover the cost of supplies from when they were manufactured a month ago. Periods of deflation have tended to go hand in hand with major economic busts, which is why modern monetary policy tries to avoid even the mildest form of deflation.