Earlier quoted context omitted.
That would be my intuition too. But if you go down almost any "this crisis won't cause inflation because..." rabbit hole on hacker news, you should see multiple unopposed claims that defaults lead to deflation through the destruction of money. I'm pretty ignorant in this field, and usually I've been a day or so behind the posts (missing the window to press for more information), but I feel like there's definitely som…
The difference is that it's the liquidation process from defaults that causes deflation, not the defaulting itself. Without the liquidation process, if you assume defaulting had no consequences, that's indeed inflation - as everyone is allowed to create money without consequence.
So sure, the loaned money might still be in the system in some naive sense, but value has been destroyed in the asset price? Suddenly a lot less money buys a lot more asset and that's where we find the deflation.
If I borrow 1M for an asset in good times and can't pay it back, the creditor gets the asset and probably gets a good portion of that 1M back. If that same scenario plays out in bad times and my whole street defaults on the same asset at once, there's a resulting fire sale and far more value is destroyed (including being wiped off neighbouring, non-creditor-owned assets of the same type) than money added by leaving the loan sloshing around somewhere else in the economy.