That can be true and it could still be higher than the rate of deflation.
Right now banks lend businesses money because the business is projected to be able to make payments at an interest rate higher than the federal funds rate. People have to buy food. People will buy the new iPhone. People pay rent. People like to travel. All of those things happen no matter what the value of money is doing, so there will always be economic incentive to start businesses that can be profitable.
My point is that it's not so one dimensional. Deflation doesn't have to be bad. You can create value without reducing the value of everything else.
In a deflationary world, it would have a lower rate of return, while hoarding cash would have a higher rate of return.
This would attack investing at both ends. Currently, the spread between inflation eating your money, and the SP earning you money is 7%. That compensates for a lot of risk. Drop that down a few percentage points (by making cash attractive), and a few more percentage points (it's harder for firms to earn profits in a deflationary environment) while keeping the risk the same, and the SP becomes a worse and worse investment.
The S&P tracks a certain basket of companies. If other companies held more value it would track those companies. There are a lot of percentage points between 7 and 0.
Deflation means USD value goes up. It doesn't mean USD value goes up 5%. A "deflationary world" could have 0.5% deflation. Or 0.00001% deflation. Again, it is incredibly narrow to view economics in this way. You lose 50% of the possible worlds you could inhabit and the economic systems and incentives you could have.
Inflation/deflation is a proxy for population growth + productivity growth + looseness of monetary policy.
Loose monetary policy can't be maintained forever (You get stagflation, which is even worse - just ask Japan), year-over-year productivity growth can't be maintained forever, and the subject this thread is discussing is 'what happens to the economy when population growth goes negative?'
So yes, a deflation of 0.5% wouldn't be devastating. A deflation of 3% would be a stop-the-presses-the-world-is-going-to-hell-we-need-a-new-economic-system event.
The problem is that you can't loose-monetary-policy your way out of deflation, because one of the factors contributing to a loose monetary policy is how willing banks are to lend money to people. In a world where the money base is shrinking year-over-year, in aggregate, lending money to people is a terrible idea, because there won't be enough money in circulation next year to make interest payments. This leads to a reduction in lending, a reduced appetite for risk in lenders, and a reduction in the amount of money created by fractional reserve banking, which further pushes you into deflationary territory.
Right now banks lend businesses money because the business is projected to be able to make payments at an interest rate higher than the federal funds rate. People have to buy food. People will buy the new iPhone. People pay rent. People like to travel. All of those things happen no matter what the value of money is doing, so there will always be economic incentive to start businesses that can be profitable.
My point is that it's not so one dimensional. Deflation doesn't have to be bad. You can create value without reducing the value of everything else.