Part 6/8:
A major problem in understanding these economic principles arises from a simplified view of inflation and deflation. Many people equate inflation strictly with higher prices and deflation with lower prices, ignoring the broader implications for income and employment. This oversimplification leads to misconceptions—especially in a society heavily reliant on debt, such as the United States.
Fixed debts, such as mortgages, become burdensome in a deflationary economy. If income falls while fixed payments remain unchanged, individuals can find themselves in dire financial straits. Therefore, deflation is often seen as a nightmare for anyone holding debt, while moderate inflation acts as a supportive mechanism for reducing the real burden of that debt.