>Somebody mentioned that bond holders might benefit from deflation.
>But if corporations are collapsing due to deflation, wouldn't many
>bonds become worthless?
Not government bonds. We've already seen a widening of the risk premium - the difference between government bond rates and those paid by riskier issuers. It's highly unlikely that a major corporation would default on its bond debt; the danger is in the - and C-rated credits.
>I think that the most widely held "investment" is money market funds,
>which have taken the place of savings accounts. Wouldn't deflation
>cause the collapse of a lot of MMFs?
A few losses, maybe, but a collapse is unlikely. Money-market funds hold lots of commercial paper, short-term unsecured debts issued by big corps. But the only firms that can issue commercial paper are the blue-chip ones.
In the entire history of the U.S. national income accounts, which begin in 1929, the corporate sector as a whole has lost money in only two years - 1932 and 1933 - and the losses were under 1% of GDP. After adding in depreciation allowance, corporate cash flow was negative in only one year, 1932.
Doug