How do deflationary spirals usually end?

Answer by KC Yee:

K C Yee

Dr K C Yee Answers

deflation is the reduction of prices and asset values over time, thus making money more valuable, which sounds pretty good, except there are at least 2 major problems:

1) people and companies don’t like to invest in deflationary environment, because the prices that they can sell the goods will be lower in the future.

2) companies with debt from past investment will have difficulty paying off the debt, because the debt has effectively gone up with money becoming more valuable.

how it ends?  many entities with debts will go bankrupt, and wipe off the debt, reducing the overall debt level of a nation, and then reinvestment can take place with new borrowing and new investments.

However, this is a very painful process, like what we went through in the  the great depression of the 1930s.

How do deflationary spirals usually end?

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