Cause if you can't make money to lower the price of capital either company a has to pay a higher rate and or the bank has to realize the losses from company b failing. The price suppression from money supply changing means that the currency now has more units than before compared to a underlying collateral so its more likely to fail or if its fiat the purchasing power of the currency gets debased. Well isn't this what you're referring to in terms of a liquidity shock? When company a is unable to finance its production due to the money destroyed? Deflationary contraction is just this situation rippling through an economy right? What do you mean by demand shortage? Demand of what?