My concern about the economy: A #deflationary #recession ......

When the economy contracts while prices fall instead of rise.

It’s a dangerous cycle because falling prices can worsen the slowdown. Here’s how it typically starts:
1. Triggering Shocks
Demand collapse: A financial crisis, burst asset bubble, or external shock (e.g., pandemic, geopolitical turmoil) leads consumers and businesses to pull back on spending.
Debt overhang: High levels of private or public debt can magnify the effect. As credit tightens, households and firms cut back, amplifying weakness.
Tight monetary or fiscal policy: Sometimes triggered by aggressive interest-rate hikes or premature austerity measures that reduce money supply or demand.
2. Falling Spending and Investment
Businesses face weaker sales → cut prices to attract buyers.
Households delay purchases, expecting things to get cheaper later (classic “deflationary psychology”).
Firms scale back investment, reducing demand for labor and goods.
3. Price Deflation Takes Hold
Lower demand pushes prices downward.
Falling prices reduce company revenues and profits, leading to layoffs and wage cuts.
Debt burdens get heavier in real terms (same nominal debt, but incomes and prices are lower), squeezing households and businesses further.
4. The Deflationary Spiral
Lower wages → lower spending → lower prices → higher real debt → more defaults and layoffs.
Bank lending contracts as defaults rise, worsening the credit crunch.
Confidence erodes, reinforcing hoarding of cash and avoidance of risk.

Most of these ingredients are either in place or falling into place.