Under-investment, reduced production causing lower wages, and obviously, severe adverse effects to debtors. Yeah, not like deflation isn't associated with economic depressions or anything..
Yes, deflation follows money supply contraction. It is not the cause. Money-supply contractions caused by underlying weakness in the credit markets are temporary, and can be easily reversed by judicious use of capital. If capital is controlled by a plutocracy who only use it to further their own wealth, then progressives have an argument for funding nascent industry with the government.
We don't live in a world with scarce capital. Quite the opposite problem, in fact. Investment bubbles everywhere from decades of global QE.