To anyone that remembers the very high inflation rates that America when through from 1973 through 1982, it may come as a surprise, that pundits today as well as government policy are intent that there should be a modest inflation rate as promoted by the Federal Reserve of around 2% yearly. Because inflation erodes the value of money over time, as well as the fact that the rate of inflation has immense implications when it comes to business, corporate, as well as personal investments, you would think that having a stable currency without inflation would be preeminent, but in point of fact, while in a perfect world, that would be true, in the real world, a little inflation is considered to be necessary so as to ward off all fears of the pernicious effects of a downward spiral of economic slowdown or inactivity and pricing declines that outright deflation brings, which occurred to America during the Great Depression, that brought to the fore financial destruction, massive unemployment, and ruin to a wide swath of humanity. In today's society any return to a depression like economic condition, would bring massive and dangerous civil unrest and thereby must be avoided at all costs.
There are two basic types of money in America, real money in the sense that this is money that you have earned and saved, as compared to money that you have borrowed from a bank or other financial institutions through consumer loans such as a mortgage, car note, school loan, or through a credit card. Borrowers in America come in all sorts of flavors and sizes, such as: individuals, companies, corporations, stock and bond investors, and government entities of all sorts, and typically the accumulation of that debt has the tendency to become inflationary because that expansion of easy money chases too few goods which artificially pushes up the price of those goods. It then follows that when borrowed money is being paid back, when debt is being paid off, such as student loans, or credit card debt, or margin accumulation, that because there is now less money dedicated to the purchasing of goods that therefore the pricing of goods must now decrease as well as businesses, in general, slowing down.
A case in point, is the stock market crash of 1929, which is attributed to the fact that speculators need only put down 10% of the value of a given stock, and could therefore leverage up the balance of 90%, so that in point of fact, a brokerage account with a cash deposit of just $10,000, could control $100,000 worth of stock, and while this can be a powerful way to leverage up and make easy money while the going is good, it can also be the fast route to financial ruin when the going gets really bad as it did during that crash. The bottom line is that when any economy runs on borrowed money and the amount of that money being borrowed hits a ceiling or comes close to maxing out for whatever reasons, than pricing overall will begin to deflate, because the capacity of money has hit a plateau. In addition, money is loaned out by banks and bank-like instruments to which those banks are dependent upon that money being paid back, as if it is not, than the banks themselves become subject to failure and collapse, because their loans have to be effectively written off or discounted heavily, signifying that the elasticity of money has snapped.
This means that in general the accumulation of debt is inflationary for the economy and correspondingly the paying back of that debt is deflationary, so that when a country and its citizens have borrowed as much as they can reasonably borrowed and probably beyond that prudent point, pricing for goods as well as labor, must fall.