This shrinks the money supply in two ways, one fundamental, one technical. Fundamentally when debt is paid in a fiat system, money is destroyed and the pool of available money shrinks. This isn’t normally a problem as lenders are constantly making new money via loans. That isn’t happening right now. Technically, people are trying to acquire dollars and they are in shorter supply (because of demand for them) they become a commodity unto themselves and respond to that scarcity.
I was going to disagree with you but you are correct. Its not paying back the debt that is deflationary, its the chilling of further lending caused by default that is. thanks.
