Warren Buffett is shaking his head at how many stupid people are going to lose money because of this.

Deflation is one of the worst things that can happen to an economy. You’re seeing it play out in China right now, and it’s a slow bleed that can take years to reverse. Here’s why deflation is such a problem, in simple terms. 1. Prices fall. Sounds good, but it’s not. When prices drop across the board, people wait to spend because they think things will be even cheaper later. Less spending means less revenue for businesses. 2. Businesses respond by cutting. Lower revenue leads to layoffs. Lower wages. Lower investment. Lower growth. 3. Debt becomes heavier. If your income falls but your debt stays the same, that debt gets harder to pay. Households, companies, and entire governments get squeezed. 4. The whole economy slows down. People spend less. Businesses earn less. Banks lend less. Everyone pulls back at the same time. That’s the deflation spiral. So what exactly is deflation? It’s the opposite of inflation. Inflation is when prices rise. Deflation is when prices fall for a sustained period. A one-off drop in the price of eggs is not deflation. A broad, long-term drop in prices across the economy is. Why China matters here: China’s consumer prices have been falling. Its property market is collapsing. People are saving instead of spending. Businesses are pausing investment. Local governments are buried in debt. This is exactly the type of environment where deflation takes hold and gets harder to escape. Deflation is dangerous because it changes behavior. People stop spending. Businesses stop hiring. Debt gets heavier. And the economy drifts downward. Once that mindset sets in, it becomes extremely difficult to reverse.