How is it actually very different from Japan-style deflation? The problem is that as the credit bubble has popped, prices across the board are falling, and cons

How is it actually very different from Japan-style deflation? The problem is that as the credit bubble has popped, prices across the board are falling, and consumers are so scared that even relatively well-off people are cutting back on consumption. And once deflationary expectations set in, it's very difficult to rid the economy of them. For example, if you expect housing prices to fall even more, it makes sense to wait a few months for them to do so. If enough people act this way, deflationary expectations become self-justifying, and prices could keep falling even beyond the fundamentals. And while individuals benefit from their dollars having increasing buying power, this is more than offset by the fact that in the face of falling demand, companies will have to slash payrolls, either through benefit reduction or layoffs. This is in turn lowers demand, deteriorating the business environment even more. And this is to say nothing of the fact that people's debts become larger in real terms during deflation, likely causing more defaults of all sorts. The shadow banking system refers to financial institutions that act like banks - ie borrow short, and lend long, oftentimes in illiquid assets - but don't have the protections that banks do, most importantly depositor insurance. Consequently, institutions like investment banks or hedge funds can still experience the equivalent of bank runs. Bear Stearns was a perfect example of this.