Deflation is very bad, prices go lower due to low demand, people know that prices will be lower so they defer purchasing, which feeds back on itself. The only way out is to stimulate the heck out of the economy - which if successful - will lead to a highly inflationary economy - since there are very long odds that the stimulation to the economy can be pulled back at the exact right time. This is why I believe we are looking at a "W" recession. When we first come out of the recession, inflation will come back and the only way to stop the inflation will be higher interest rates - which will throw the economy back into a shorter secondary recession. This is why I think it is time that people focus on reducing their debt now - so that when this hits people will be prepared.
Unfortunately, this is similar to the scenario we are seeing globally.
With all the inflationary measures from the US and other countries throwing around TRILLIONS of dollars trying to fix the problem, which too much easy money originally caused, we are headed for the likelyhood of STAGflation.
Stagflation
From Wikipedia, the free encyclopedia
Stagflation is an economic situation in which inflation and economic stagnation occur simultaneously and remain unchecked for a period of time.[1] The portmanteau "stagflation" is generally attributed to British politician Iain Macleod, who coined the term in a speech to Parliament in 1965.[2][3][4] The concept is notable partly because, in postwar macroeconomic theory, inflation and recession were regarded as mutually exclusive, and also because stagflation has generally proven to be difficult and costly to eradicate once it gets started.
Economists offer two principal explanations for why stagflation occurs. First, stagflation can result when an economy is slowed by an unfavorable supply shock, such as an increase in the price of oil in an oil importing country, which tends to raise prices at the same time that it slows the economy by making production less profitable.[5][6][7] This type of stagflation presents a policy dilemma because most actions to assist with fighting inflation worsen economic stagnation and vice versa. Second, both stagnation and inflation can result from inappropriate macroeconomic policies. For example, central banks can cause inflation by permitting excessive growth of the money supply,[8] and the government can cause stagnation by excessive regulation of goods markets and labor markets;[9] together, these factors can cause stagflation.
