deflation can be a welcome development. The value of your money increases while the price of the things you want or need decreases. If everyone was prepared for deflation, many would welcome its coming and ask rhetorically why is deflation bad. For those who are prepared, deflation is a win-win.
Unfortunately, virtually everyone is unprepared for deflation, because virtually everyone has leveraged themselves to the hilt. Years of low- and no-interest financing schemes on houses, autos, furniture, electronics, etc. have created years of negative savings rates for Americans.
Furthermore, many American households’ savings are tied up in investments that will go sour in deflation: i.e. stocks, bonds, commodities and real estate. As if a wipeout of life savings isn’t bad enough, declining prices (one of the effects of deflation), means lower profits for companies. In turn this means layoffs and increased unemployment. More on that when we discuss the price and economic effects of deflation and the deflationary spiral.
But just because you have a stable job and a cash reserve doesn’t mean deflation won’t rear its ugly head in your life. Say you not only keep your job but you get a promotion, and the promotion requires you to move. In order to acquire new residence, you must sell your house. In a deflationary environment, plummeting housing prices can make selling difficult, especially if you expect to make a profit. Many sellers are forced to sell at a loss, which further begets the effects of deflation in housing.
Thus the answer to "why is deflation bad" is that it’s not bad if you’re prepared for it.
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