"The idea that people would stop spending in a deflationary environment where their purchasing power is rising over time is insane" Well that's what happens every time. We have rich history on this. Savings dominates because demand for money increases. Those who lacked savings before the deflation suffer while the wealthy hoard. Discretionary spending collapses. Investment screeches to a halt. Businesses sell products at a loss. Unemployment rises. It's a story over a thousand years old.