The reason inflation is necessary is because our money system is built on debt. If the money supply shrinks, there simply isn't enough money to repay the balance. That means insolvency, which further contracts the money supply. That results in more insolvency, and under the right circumstances you get a chain reaction that completely detonates the economy. That probably would have happened in 2008, but the government stepped in and artificially inflated the money supply to stem the bleeding. Unfortunately, since exponential growth can't continue forever, we're going to be locked into cycles of successively larger financial crises rescued by public debt until the system is so burdened by obligations that it collapses under its own weight.