It means people won't buy anything. Why buy something worth $ 200 today when you can get it tomorrow for $175. People don't buy, business go bankrupt and people lose their jobs. No jobs=no economy since there is no demand and now you have to inject a fortune to get it rolling again.
Do you realize that your example has 12.5% deflation, per day? That's hyper deflation, not normal deflation. Rephrase that example to: "Would you buy something for 200$ today if you can get it for 196$ next year?" (2% deflation per year).