Inflation will increase the dollar denominated value of assets, deflation will do the opposite. Most big ticket items, or high end capital goods are financed, therefore carry a fixed cost. Deflation (ongoing default) will actually starve the buying power out of everyone who has contractually obligated debt.Inflation affects everyone, default affects those people who made bad loans and the people who took out the bad loans.
No, it would cause prices to fall, and then freeze up credit. And its all about credit.You could argue that this would freeze up capital, but why shouldn't it be hard to get?
No.... What you are describing will cause another liquidity trap. If people are afraid prices are going to continue to fall, purchases through capital or credit will diminish; even if consumers/investors have the ability to do so.This way only those most trustworthy would get the capital and we invest in those strongest areas of the economy.