> If your contract says you make $5000/month in salary, then why would the number of dollars decrease?
Well, deflation means everything costs less. And "everything" includes wages and salaries, even yours. If we had 50% deflation, that means the boss could hire somebody who was as productive as you for 50% less. This is elementary, right? That's what deflation means.
So either you are going to renegotiate that contract, or the boss will just fire you and hire somebody else.
"But I have a contract--how can he fire me??" Do you have a contract with your employer? If so, take another look at it--it will say you can be fired at any time for any reason.
There was a time in America when unions were strong enough that they could demand contracts for you which limited the conditions under which you could be fired. But (thank you, Ronald Reagan) those days were half a century ago. Some call it bullshit, some call it "efficient capitalism".
But the more efficient capitalism is, the faster your salary would decrease in lockstep with deflation. You would very rapidly not be able to pay your car payment, mortgage and credit cards. And if you think the banks are going care about your sob story, remember in 2008, the last time that large numbers of people couldn't pay their mortgages, they were kicked out into the street by the millions.
> (in countries that don't suck, anyway).
Well, two points, 1) America is a country that sucks, in that sense, and 2) Countries that don't suck do not let themselves fall into a deflationary trap.