You say it does not, I say it does. If an economy can handle fluctuation in the value of money in one direction surely it could do so the other way too. In fact, this is precisely what has happened over thousands of years. The constant loss of value of money without limit is a relatively recent invention. In centuries past prices would go up, then back down, then back up, then back down and so on. If our unsophisticated, foolish and stupid ancestors could handle such fluctuations certainly the enlightened and modern people of today could as well.
Before the modern era, economies were quite fragile, falling into crisis frequently and severely (see http://en.wikipedia.org/wiki/File:US_Unemployment_1800-1890....). The one saving grace was that in those times most people were farmers, and thus were self-employed (and could at least eat).
In my lifetime the economy has been quite fragile too. I'm not convinced that the booms and bust of old are any worse than they are today. Sure these days they're smoothed out more but the pain lasts longer.
When removing a bandaid do you simply rip it off all at once or slowly peel it back? Which is the superior method?
EDIT: Here's a graph of inflation vs deflation in the US over a few hundred years. http://en.wikipedia.org/wiki/Deflation#Major_deflations_in_t...