"The fair tax will eventually make items cost less to make, and the prices for items will go down. However, companies with inventory get screwed. They paid higher prices to purchase or make those items, and they're suddenly worth considerably less.
Let's go back to real estate. A developer invest many millions of dollars into building a housing development. The fair tax goes into effect and the houses can now be built for 20+ percent less. The developer doesn't even make 20% on the deal if things would have went right to begin with, so they go bankrupt."
Ah so! Very legitimate concern. You will be delighted to know that the FairTax has a transition rule built into it to allow businesses which hold inventory on the effective date of the FairTax's implementation to file for a credit which will approximate the amount of taxes of the old system imbedded into that inventory. The purpose of that rule is to enable businesses to pass along the price reductions immediately and to prevent just such market dislocations as you are concerned about.