Once this deflationary mindset had taken hold, people engaged in economic activity assuming that deflation would continue. As a result, the economy fell into a vicious cycle of a decline in prices, a decline in sales and profits, stagnant wages and consumption, and a further decline in prices. Moreover, under deflation, the real value of cash and deposits increases with the decline in prices.
In addition, market developments, regulatory relief, and, most recently, legislative reform have ensured that the banks, the insurance companies, the securities firms, the finance companies, and the host of other participants, from pension funds to hedge funds and from trusts to mutual funds, are all, in effect, in each other's business.