debt deflation

The New Depression: The Breakdown of the Paper Money Economy
by Richard Duncan
Published 2 Apr 2012

Observing that phenomenon firsthand, Irving Fisher explained it in a famous 21-page article published in Econometrica in October 1933. The article was titled “The Debt-Deflation Theory of Great Depressions.” The crisis the world faces today is very much like the one that crushed the global economy in 1930. Both were caused by extraordinarily large fiat-money-denominated credit bubbles. Fisher’s article clearly describes the debt-deflation dynamics that now threaten to drive the global economy into a New Great Depression. This important article will therefore be considered at some length because there is no clearer explanation of the manner in which our economy would collapse should government intervention cease.

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There should be no doubt that the natural tendency for the economy—following a 40-year credit boom—is to collapse into a debt-deflation depression. Policy makers understand that. They have read Fisher’s article. That is why they are determined to prevent that outcome from recurring. Try as they might, however, it is far from certain that they can prevent it. Moreover, their attempts to reflate the economy could go astray and actually generate very high rates of inflation or even hyperinflation. In that case, the cure could prove to be just as deadly as the disease. Therefore, over the years ahead, the U.S. economy could suffer either severe debt-deflation or severe inflation. Either scenario would inflict enormous damage on the economy and, therefore, on society.

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Banking Crisis Protectionism Geopolitical Consequences Conclusion Note Chapter 9: The Policy Options Capitalism and the Laissez-Faire Method The State of Government Finances The Government’s Options American Solar Conclusion Notes Chapter 10: Fire and Ice, Inflation and Deflation Fire Ice Fisher’s Theory of Debt-Deflation Winners and Losers Ice Storm Fire Storm Wealth Preservation through Diversification Other Observations Concerning Asset Prices in the Age of Paper Money Protectionism and Inflation Consequences of Regulating Derivatives Conclusion Notes Conclusion About the Author Index Copyright © 2012 Richard Duncan.

Modernising Money: Why Our Monetary System Is Broken and How It Can Be Fixed
by Andrew Jackson (economist) and Ben Dyson (economist)
Published 15 Nov 2012

Essentially, banks will favour lending to firms with market power, as their ability to constrain downward price movements during recessions and depressions decreases the risk of them defaulting on a loan. Due to the negative effect of debt deflations on small firms and banks favouritism in lending to firms with market power, once the economy recovers prices are likely to increase, as the remaining large forms exercise their market power in order to increase prices. With government intervention: Alternatively, the government may choose to intervene and attempt to increase cash flows to prevent the debt deflation and associated depression. The most visible interventions in the most recent crisis were the bank bailouts, which were mainly designed to ensure the continual functioning of the financial markets and prevent the spread of panic.

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In effect profits are privatised and losses are socialised.9 Consequently, while the government may offset the worst of a financial crisis, its actions may have unintended consequences, namely increasing inflation and making a future crisis more likely: “the economic relations that make a debt deflation and a long-lasting deep depression like that of the 1930s unlikely in a Big Government economy can lead to chronic and, at times, accelerating inflation. In effect, inflation may be the price we pay for depression proofing our economy.” (Minsky, 1986, p. 165) The Financial Instability Hypothesis To sum up, the essence of the Financial Instability Hypothesis is that booms and busts, asset price bubbles, financial crises, depressions, and even debt deflations all occur in the normal functioning of a capitalist economy. What is more, periods of relative stability increase the likelihood of instability and crisis by increasing returns and thus the desirability of leverage.

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For the money supply not to shrink as loans are repaid requires that new loans are taken out to replace the loans repaid. If this level of borrowing is not maintained, stagnation and recession may result, which can lead to debt deflation and other negative consequences. Thus the government must design policy in order to encourage individuals and businesses to become indebted, to ensure that growth is maintained and debt deflations and recessions do not occur. In the UK examples of such policies (whether deliberately designed for this purpose or not) include the recent Bank of England ‘Funding for Lending Scheme’ and the ability of firms to deduct interest payments against taxes.

What Would the Great Economists Do?: How Twelve Brilliant Minds Would Solve Today's Biggest Problems
by Linda Yueh
Published 4 Jun 2018

Despite the terrible news, Fisher still believed the depression was bottoming out, and that the economy would quickly move away from depression in 1933. It didn’t. After his experience of the 1930s, Fisher produced a theory of business cycles different from the monetarist version of his earlier work. This was the debt-deflation theory of depression, which he laid out in his 1932 book Booms and Depressions, and summarized a year later in his famous 1933 article in Econometrica entitled ‘The Debt-Deflation Theory of Great Depressions’. Fisher identified all great depressions as starting from a point of overindebtedness: The public psychology of going into debt for gain passes through several more or less distinct phases: (a) the lure of big prospective dividends or gains in income in the remote future; (b) the hope of selling at a profit, and realizing a capital gain in the immediate future; (c) the vogue of reckless promotions, taking advantage of the habituation of the public to great expectations; (d) the development of downright fraud, imposing on a public which had grown credulous and gullible.15 In the case of the Great Depression, the overindebtedness originated in reckless borrowing by corporations who had been encouraged by high-pressure salesmanship of investment bankers.

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Debt-to-GDP ratios shot up in the 1930s because of deflation, when falling prices increased the value of debt to be repaid. Now they are high because there has been so much borrowing in the recent past. Large debts are, of course, a necessary condition for debt-deflation, but even though inflation rates have fallen below the 2 per cent target set by many major central banks, actual deflation is still the dog that hasn’t yet barked. But does this mean we have escaped debt-deflation? Did policymakers learn the lessons from the 1930s? And what might they still need to do? According to Irving Fisher, when inflation is low and the economy collapses, the central bank should act more aggressively than normal to avoid the onset of deflation.

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Buccleuch, Henry Scott, 3rd Duke of budget deficits and austerity Burns, Arthur Burns, Mary business cycle theory Fisher Hayek Schumpeter Callaghan, James Cambridge School see also Keynes, John Maynard; Marshall, Alfred; Robinson, Joan Cambridge University Girton College Kings College Newnham College St Johns and women Canon capital accumulation capital investment capitalism in aftermath of 2008 financial crisis and communism derivation of term and Engels and the financial crisis of 2008 free-market and Hayek inequality and capitalist economies laissez-faire see laissez-faire and Marx and the Occupy movement and Schumpeterian ‘creative destruction’ socialism vs welfare state capitalism car industry Carney, Mark Carter, Jimmy Case, Elizabeth central banks Bank of England Bank of Japan European Central Bank Fed see Federal Reserve forward guidance macroprudential policy monetary policy tools see also quantitative easing (QE) Chamberlin, Edward Chicago School see also Friedman, Milton Chile China 1949 revolution asset management companies banking system Beijing Consensus Communist Party corporate debt Cultural Revolution domestic innovation economic transformation ‘effect’/‘price’ employment system entrepreneurs exports Five Year Plan (1953) foreign direct investment (FDI) and Germany industrialization and reindustrialization inequality innovation challenge legal institutions manufacturing Maoism and Marx national debt openness ‘paradox’ poverty reduction privatization R&D investment regional free trade agreement renminbi (RMB) as second largest economy services sector shadow banking smartphones social networks trade-to GDP ratio and the USSR wage increases women Churchill, Winston class Engels’ The Condition of the Working Class in England and Marx middle see middle class and Ricardo wage earner class Classical School of economics see also Mill, John Stuart; Ricardo, David; Smith, Adam Clinton, Bill Clinton, Hillary cloth clothing Coase, Ronald Cold War Collectivist Economic Planning collectivization Collier, Paul Columbia University communism Bolshevik Party and capitalism Chinese Communist League First International Marxism see Marxism and Robinson Socialist/Second International Third International USSR see Soviet Union Vietnamese vs welfare state capitalism Communist League comparative advantage theory competition ‘competing down’ (Schumpeter) imperfect between money providers perfect and Robinson wages and competitiveness computers Conard, Ed construction consultancy firms consumerism consumption and comparative advantage theory consumer spending and marginal utility analysis convergence hypothesis corn, free trade in Corn Laws repeal and Ricardo corporate debt Cowles Commission Crafts, Nicholas crafts credit crunch credit default swaps (CDS) credit rating Crimean War crypto-currencies currency crises first-generation second-generation third-generation currency stability Cyprus death duties debt Chinese corporate debt-deflation spiral and government bonds indexation and protection from and Minsky’s financial instability hypothesis mortgage debt national see national debt private corporate as share of GDP decentralization defence deflation debt-deflation spiral Fisher and combating deflation Japan self-fulfilling deindustrialization and globalization premature reversing/reindustrialization and trade US Deng Xiaoping depression see Great Depression (1930s); Long Depression (1880s); recession/depression diminishing returns to capital distributive lag model Douglas, David, Lord Reston Douglas, Janet DuPont East Asian ‘tiger’ economies see also Hong Kong; Singapore; South Korea; Taiwan eastern Europe Eastman Kodak Econometric Society Econometrica economic development challenges and Beijing Consensus financial/currency crises and institutions and Lewis model Myanmar and North and path dependence poverty eradication/reduction South Africa Sustainable Development Goals Vietnam and Washington Consensus economic equilibrium economic freedom economic growth and austerity barriers convergence hypothesis development challenges see economic development challenges drivers of 2 see also innovation; institutions; public investment; technology endogenous growth theories inclusive growth through investment Japan’s growth and Japan’s ‘lost decades’ Lewis model mercantilist doctrine of and new technologies policy debates on raising and poverty reduction and productivity debate/challenge slow growth and the future Solow model UK government’s renewed focus on and unemployment Economic Journal economic rent Ricardo’s theory of economies ‘animal spirits’ of crises see financial crises deflation see deflation emerging see emerging economies equilibrium in GDP see gross domestic product global macroeconomic imbalances growth of see economic growth inequality and capitalist economies inflation see inflation and international trade and investment see investment; public investment national debt see national debt QE see quantitative easing rebalancing of recession see recession/depression services economy see services sector and stagnant wages state intervention Economist education higher role in reducing inequality universal Eliot, T.

Debunking Economics - Revised, Expanded and Integrated Edition: The Naked Emperor Dethroned?
by Steve Keen
Published 21 Sep 2011

However, this accidental success may not last long if the pressures which have been clearly growing in the financial side of the economy finally erupt (Keen 2001a: 213). Possibility of debt deflation in the USA If a crisis does occur after the Internet Bubble finally bursts, then it could occur in a milieu of low inflation (unless oil price pressures lead to an inflationary spiral). Firms are likely to react to this crisis by dropping their margins in an attempt to move stock, or to hang on to market share at the expense of their competitors. This behavior could well turn low inflation into deflation. The possibility therefore exists that America could once again be afflicted with a debt deflation – though its severity could be attenuated by the inevitable increase in government spending that such a crisis would trigger.

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[A footnote adds:] I do not deny the possible importance of irrationality in economic life; however it seems that the best research strategy is to push the rationality postulate as far as it will go. (Ibid.: 43) As we shall see, this is a parody of Minsky’s hypothesis. He devoted slightly more space to Irving Fisher and his debt-deflation theory, but what he presented was likewise a parody of Fisher’s views, rather than a serious consideration of them: The idea of debt-deflation goes back to Irving Fisher (1933). Fisher envisioned a dynamic process in which falling asset and commodity prices created pressure on nominal debtors, forcing them into distress sales of assets, which in turn led to further price declines and financial difficulties.

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However, by the end of the 1980s, the cost pressures that coincided with the slump of the early 1970s had long since been eliminated, by fifteen years of high unemployment and the diminution of OPEC’s cartel power. The crisis of the late 1980s thus occurred in a milieu of low inflation, raising the specter of a debt deflation. (Keen 1995: 611–14) I added the following qualification about the capacity for government action to attenuate the severity of a debt deflation – while not addressing its underlying causes – to my précis of Minsky in the first edition of Debunking Economics: If a crisis does occur after the Internet Bubble finally bursts, then it could occur in a milieu of low inflation (unless oil price pressures lead to an inflationary spiral).

The Great Economists: How Their Ideas Can Help Us Today
by Linda Yueh
Published 15 Mar 2018

Despite the terrible news, Fisher still believed the depression was bottoming out, and that the economy would quickly move away from depression in 1933. It didn’t. After his experience of the 1930s, Fisher produced a theory of business cycles different from the monetarist version of his earlier work. This was the debt-deflation theory of depression, which he laid out in his 1932 book Booms and Depressions, and summarized a year later in his famous 1933 article in Econometrica entitled ‘The Debt-Deflation Theory of Great Depressions’. Fisher identified all great depressions as starting from a point of overindebtedness: The public psychology of going into debt for gain passes through several more or less distinct phases: (a) the lure of big prospective dividends or gains in income in the remote future; (b) the hope of selling at a profit, and realizing a capital gain in the immediate future; (c) the vogue of reckless promotions, taking advantage of the habituation of the public to great expectations; (d) the development of downright fraud, imposing on a public which had grown credulous and gullible.15 In the case of the Great Depression, the overindebtedness originated in reckless borrowing by corporations who had been encouraged by high-pressure salesmanship of investment bankers.

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Debt-to-GDP ratios shot up in the 1930s because of deflation, when falling prices increased the value of debt to be repaid. Now they are high because there has been so much borrowing in the recent past. Large debts are, of course, a necessary condition for debt-deflation, but even though inflation rates have fallen below the 2 per cent target set by many major central banks, actual deflation is still the dog that hasn’t yet barked. But does this mean we have escaped debt-deflation? Did policymakers learn the lessons from the 1930s? And what might they still need to do? According to Irving Fisher, when inflation is low and the economy collapses, the central bank should act more aggressively than normal to avoid the onset of deflation.

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Concerns over economic growth have certainly heated up since the 2008 global financial crisis, which was the worst economic downturn since the Great Depression of the 1930s. America was the epicentre, and Britain was deeply affected. Years later, there are still high levels of debt and less than robust economic growth. Irving Fisher, who lived through it, warned about the danger of the debt-deflation spiral after such crises. It’s what Japan has experienced since its early 1990s real estate crash. As debt was repaid, output fell which led to falling prices or deflation and ‘lost decades’ of growth. What would Fisher advise in order to ensure that countries do not face ‘lost decades’ of growth?

House of Debt: How They (And You) Caused the Great Recession, and How We Can Prevent It From Happening Again
by Atif Mian and Amir Sufi
Published 11 May 2014

See mortgage lenders; savers credit-rating agencies, 103–4 currency in circulation, 154–57 Daley, Suzanne, 119–21 Davidson, Adam, 131–32, 200n21 Davis, Steven, 70 debt, 12–13, 17–30, 39–45, 166; animal spirits view of, 80–81, 196n8; as anti-insurance, 29–30; bubbles and, 110–16, 149, 169–70; equity-like financing of, 168–70, 180–87, 206n13; forgiveness programs for, 60, 135–51, 205n19; government subsidy of, 181–82; in the levered-losses framework, 50–52, 70–71, 134, 170; marginal propensity to consume levels and, 39–44, 194n5; in neglected risks frameworks, 114–15; optimists’ use of, 111–13; risk-sharing principle of, 168–87; risks of home ownership and, 2, 12–13, 17–30, 39, 168–69; spending declines and, 38–41; for student loans, 167–69, 182–83, 206n9; wealth inequality and, 18–21, 23–25, 71. See also household debt debt-deflation cycle, 55, 152–53, 162 “Debt Deflation: Theory and Evidence” (King), 7 debt financing system, 21, 50, 111–13, 180–85 debtors. See borrowers default, 150; probabilities of, 100–101; rates of, 101–5, 198n18 deflation, 55, 152–53, 162 “Deleveraging Myth, The” (Surowiecki), 38–39, 193n4 Del Ray, Elena, 206n9 demand-driven economic activity, 54 DeMarco, Edward, 140–42 Demyanyk, Yuliya, 104 Depression, the, 70, 197n12; bank failures of, 127; central bank policy of, 155–57; debt-deflation cycle of, 55, 152–53, 162; debt forgiveness programs of, 144–45; household debt prior to, 4–5, 44; household spending and, 5–6; personal savings rate prior to, 5 Detroit’s west side, 75–76, 79, 104–5, 196n1 distribution of housing-based losses, 150–51.

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The basic argument put forward in these studies is simple: If you had known how much household debt had increased in a country prior to the Great Recession, you would have been able to predict exactly which countries would have the most severe decline in spending during the Great Recession. But is the relation between household-debt growth and recession severity unique to the Great Recession? In 1994, long before the Great Recession, Mervyn King, the recent governor of the Bank of England, gave a presidential address to the European Economic Association titled “Debt Deflation: Theory and Evidence.” In the very first line of the abstract, he argued: “In the early 1990s the most severe recessions occurred in those countries which had experienced the largest increase in private debt burdens.”16 In the address, he documented the relation between the growth in household debt in a given country from 1984 to 1988 and the country’s decline in economic growth from 1989 to 1992.

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If an indebted household faces a wage cut while their mortgage payment remains the same, they are likely to cut spending even further. This leads to a vicious cycle in which indebted households cut spending, which leads firms to reduce wages, which leads to higher debt burdens for households, which leads them to cut back even further. This was famously dubbed the “debt-deflation” cycle by Irving Fisher in the aftermath of the Great Depression.9 There are several other important frictions that prevent the economy from adjusting to a severe spending shock. For example, borrowers tend to buy different types of products than savers. If borrowers start buying less, the economy would need to ramp down production of goods that borrowers like and ramp up production of goods that savers like.

Crisis Economics: A Crash Course in the Future of Finance
by Nouriel Roubini and Stephen Mihm
Published 10 May 2010

pid=20601110&sid=aK3wlrRdMC38. 138 “gives economists chills”: Peter Goodman, “Fear of Deflation Lurks as Global Demand Drops,” New York Times, October 31, 2008. 138 robust economic growth: Michael D. Bordo and Andrew J. Filardo, “Deflation in a Historical Perspective,” Bank for International Settlements Working Paper no. 186, November 2005, online at http://www.bis.org/publ/work186.pdf?noframes=1. 139 “debt-deflation theory of great depressions”: Irving Fisher, “The Debt-Deflation Theory of Great Depressions,” Econometrica 1 (1933). 140 “The very effort of individuals . . .”: Ibid., 344, 346. 140 “great paradox”: Ibid., 344. 142 brutal economic collapse: Peter Temin, “The Great Depression,” in Stanley L. Engerman and Robert E. Gallman, eds., The Cambridge Economic History of the United States (Cambridge, U.K.: Cambridge University Press, 2000), 3:301-10.

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As the level of aggregate demand falls below the supply of goods, the larger economy suffers from price deflation: with every passing day, each dollar purchases more than it did the day before. It sounds like a blessing, but for debtors it’s a curse. Irving Fisher, a Great Depression economist who coined the term “debt deflation” (see chapter 6) to describe this process, observed that if the price of goods falls faster than debts are reduced, the real value of private debts will rise over time. For example, imagine that someone borrows a million dollars to buy a house with no money down. The house is worth a million dollars; the owner owes a million dollars.

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While Fisher remains infamous today for claiming, shortly before the market crashed in 1929, that stock prices would remain on a “permanently high plateau,” he redeemed himself by subsequently articulating a compelling theory of the connection between financial crises, deflation, and depression, or what he called the “debt-deflation theory of great depressions.” Put simply, Fisher believed that depressions became great because of two factors: too much debt in advance of a crisis, and too much deflation in its wake. Fisher began by observing that some of the worst crises in American history—1837, 1857, 1893, and 1929—followed on the heels of an excessive accumulation of debt throughout the economy.

End This Depression Now!
by Paul Krugman
Published 30 Apr 2012

Congressional Budget Office (CBO): income inequality estimate of, 76–77 real GDP estimates of, 13–14 Conservative Party, U.K., 200 conservatives: anti-government ideology of, 66 anti-Keynesianism of, 93–96, 106–8, 110–11 Big Lie of 2008 financial crisis espoused by, 64–66, 100 free market ideology of, 66 Consumer Financial Protection Bureau, 84 Consumer Price Index (CPI), 156–57, 159, 160 consumer spending, 24, 26, 30, 32, 33, 39, 41, 113, 136 effect of government spending on, 39 household debt and, 45, 47, 126, 146 income inequality and, 83 in 2008 financial crisis, 117 conventional wisdom, lessons of Great Depression ignored in, xi corporations, 30 see also business investment, slump in; executive compensation correlation, causation vs., 83, 198, 232–33, 237 Cowen, Brian, 88 credit booms, 65 credit crunches: of 2008, 41, 110, 113, 117 Great Depression and, 110 credit default swaps, 54, 55 credit expansion, 154 currency, manipulation of, 221 currency, national: devaluation of, 169 disadvantages of, 168–69, 170–71 flexibility of, 169–73, 179 optimum currency area and, 171–72 see also euro Dakotas, high employment in, 37 debt, 4, 34, 131 deregulation and, 50 high levels of, 34, 45, 46, 49–50, 51 self-reinforcing downward spiral in, 46, 48, 49–50 usefulness of, 43 see also deficits; government debt; household debt; private debt “Debt-Deflation Theory of Great Depressions, The” (Fisher), 45 debt relief, 147 defense industry, 236 defense spending, 35, 38–39, 148, 234–35, 235, 236 deficits, 130–49, 151, 202, 238 Alesina/Ardagna study of, 196–99 depressions and, 135–36, 137 exaggerated fear of, 131–32, 212 job creation vs., 131, 143, 149, 206–7, 238 monetary policy and, 135 see also debt deflation, 152, 188 debt and, 45, 49, 163 De Grauwe, Paul, 182–83 deleveraging, 41, 147 paradox of, 45–46, 52 demand, 24–34 in babysitting co-op example, 29–30 inadequate levels of, 25, 29–30, 34, 38, 47, 93, 101–2, 118, 136, 148 spending and, 24–26, 29, 47, 118 unemployment and, 33, 47 see also supply and demand Democracy Corps, 8 Democrats, Democratic Party, 2012 election and, 226, 227–28 Denmark, 184 EEC joined by, 167 depression of 2008–, ix–xii, 209–11 business investment and, 16, 33 debt levels and, 4, 34, 47 democratic values at risk in, 19 economists’ role in, 100–101, 108 education and, 16 in Europe, see Europe, debt crisis in housing sector and, 33, 47 income inequality and, 85, 89–90 inflation rate in, 151–52, 156–57, 159–61, 189, 227 infrastructure investment and, 16–17 lack of demand in, 47 liquidity trap in, 32–34, 38, 51, 136, 155, 163 long-term effects of, 15–17 manufacturing capacity loss in, 16 as morality play, 23, 207, 219 private sector spending and, 33, 47, 211–12 unemployment in, x, 5–12, 24, 110, 117, 119, 210, 212 see also financial crisis of 2008–09; recovery, from depression of 2008– depressions, 27 disproportion between cause and effect in, 22–23, 30–31 government spending and, 135–36, 137, 231 Keynes’s definition of, x Schumpeter on, 204–5 see also Great Depression; recessions deregulation, financial, 54, 56, 67, 85, 114 under Carter, 61 under Clinton, 62 income inequality and, 72–75, 74, 81, 82, 89 under Reagan, 50, 60–61, 62, 67–68 rightward political shift and, 83 supposed benefits of, 69–70, 72–73, 86 derivatives, 98 see also specific financial instruments devaluation, 169, 180–81 disinflation, 159 dot-com bubble, 14, 198 Draghi, Mario, 186 earned-income tax credit, 120 econometrics, 233 economic output, see gross domestic product Economics (Samuelson), 93 economics, economists: academic sociology and, 92, 96, 103 Austrian school of, 151 complacency of, 55 disproportion between cause and effect in, 22–23, 30–31 ignorance of, 106–8 influence of financial elite on, 96 Keynesian, see Keynesian economics laissez-faire, 94, 101 lessons of Great Depression ignored by, xi, 92, 108 liquidationist school of, 204–5 monetarist, 101 as morality play, 23, 207, 219 renewed appreciation of past thinking in, 42 research in, see research, economic Ricardian, 205–6 see also macroeconomics “Economics of Happiness, The” (Bernanke), 5 economy, U.S.: effect of austerity programs on, 51, 213 election outcomes and, 225–26 postwar boom in, 50, 70, 149 size of, 121, 122 supposed structural defects in, 35–36 see also global economy education: austerity policies and, 143, 213–14 depression of 2008– and, 16 income inequality and, 75–76, 89 inequality in, 84 teachers’ salaries in, 72, 76, 148 efficient-markets hypothesis, 97–99, 100, 101, 103–4 Eggertsson, Gauti, 52 Eichengreen, Barry, 236 elections, U.S.: economic growth and, 225–26 of 2012, 226 emergency aid, 119–20, 120, 144, 216 environmental regulation, 221 Essays in Positive Economics (Friedman), 170 euro, 166 benefits of, 168–69, 170–71 creation of, 174 economic flexibility constrained by, 18, 169–73, 179, 184 fixing problems of, 184–87 investor confidence and, 174 liquidity and, 182–84, 185 trade imbalances and, 175, 175 as vulnerable to panics, 182–84, 186 wages and, 174–75 Europe: capital flow in, 169, 174, 180 common currency of, see euro creditor nations of, 46 debtor nations of, 4, 45, 46, 139 democracy and unity in, 184–85 fiscal integration lacking in, 171, 172–73, 176, 179 GDP in, 17 health care in, 18 inflation and, 185, 186 labor mobility lacking in, 171–72, 173, 179 1930s arms race in, 236 social safety nets in, 18 unemployment in, 4, 17, 18, 176, 229, 236 Europe, debt crisis in, x, 4, 40, 45, 46, 138, 140–41, 166–87 austerity programs in, 46, 144, 185, 186, 188, 190 budget deficits and, 177 fiscal irresponsibility as supposed cause of (Big Delusion), 177–79, 187 housing bubbles and, 65, 169, 172, 174, 176 interest rates in, 174, 176, 182–84, 190 liquidity fears and, 182–84 recovery from, 184–87 unequal impact of, 17–18 wages in, 164–65, 169–70, 174–75 European Central Bank, 46, 183 Big Delusion and, 179 inflation and, 161, 180 interest rates and, 190, 202–3 monetary policy of, 180, 185, 186 European Coal and Steel Community, 167 European Economic Community (EEC), 167–68 European Union, 172 exchange rates, fixed vs. flexible, 169–73 executive compensation, 78–79 “outrage constraint” on, 81–82, 83 expansionary austerity, 144, 196–99 expenditure cascades, 84 Fama, Eugene, 69–70, 73, 97, 100, 106 Fannie Mae, 64, 65–66, 100, 172, 220–21 Farrell, Henry, 100, 192 Federal Deposit Insurance Corporation (FDIC), 59, 172 Federal Housing Finance Agency, 221 Federal Reserve, 42, 103 aggressive action needed from, 216–19 creation of, 59 foreign exchange intervention and, 217 inflation and, 161, 217, 219, 227 interest rates and, 33–34, 93, 105, 117, 134, 135, 143, 151, 189–90, 193, 215, 216–17 as lender of last resort, 59 LTCM crisis and, 69 money supply controlled by, 31, 32, 33, 105, 151, 153, 155, 157, 183 recessions and, 105 recovery and, 216–19 in 2008 financial crisis, 104, 106, 116 unconventional asset purchases by, 217 Federal Reserve Bank of Boston, 47–48 Feinberg, Larry, 72 Ferguson, Niall, 135–36, 139, 160 Fianna Fáil, 88 filibusters, 123 financial crisis of 2008–09, ix, x, 40, 41, 69, 72, 99, 104, 111–16 Bernanke on, 3–4 Big Lie of, 64–66, 100, 177 capital ratios and, 59 credit crunch in, 41, 110, 113, 117 deleveraging in, 147 Federal Reserve and, 104, 106 income inequality and, 82, 83 leverage in, 44–46, 63 panics in, 4, 63, 111, 155 real GDP in, 13 see also depression of 2008–; Europe, debt crisis in financial elite: political influence of, 63, 77–78, 85–90 Republican ideology and, 88–89 top 0.01 percent in, 75, 76 top 0.1 percent in, 75, 76, 77, 96 top 1 percent in, 74–75, 74, 76–77, 96 see also income inequality financial industry, see banks, banking industry financial instability hypothesis, 43–44 Financial Times, 95, 100, 203–4 Finland, 184 fiscal integration, 171, 172–73, 176 Fisher, Irving, 22, 42, 44–46, 48, 49, 52, 163 flexibility: currency and, 18, 169–73 paradox of, 52–53 Flip This House (TV show), 112 Florida, 111 food stamps, 120, 144 Ford, John, 56 foreclosures, 45, 127–28 foreign exchange markets, 217 foreign trade, 221 Fox News, 134 Frank, Robert, 84 Freddie Mac, 64, 65–66, 100, 172, 220–21 free trade, 167 Friedman, Milton, 96, 101, 181, 205 on causes of Great Depression, 105–6 Gabriel, Peter, 20 Gagnon, Joseph, 219, 221 Gardiner, Chance (char.), 3 Garn–St.

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For high levels of debt leave the economy vulnerable to a sort of death spiral in which the very efforts of debtors to “deleverage,” to reduce their debt, create an environment that makes their debt problems even worse. The great American economist Irving Fisher laid out the story in a classic 1933 article titled “The Debt-Deflation Theory of Great Depressions”—an article that, like the Keynes essay with which I opened chapter 2, reads, stylistic archaisms aside, as if it had been written just the other day. Imagine, said Fisher, that an economic downturn creates a situation in which many debtors find themselves forced to take quick action to reduce their debt.

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He argued that this was the real story behind the Great Depression—that the U.S. economy came into a recession with an unprecedented level of debt that made it vulnerable to a self-reinforcing downward spiral. He was almost surely right. And as I’ve already said, his article reads as if had been written yesterday; that is, a similar if less extreme story is the main explanation of the depression we’re in right now. The Minsky Moment Let me try to match Fisher’s pithy slogan about debt deflation with a similarly imprecise, but I hope evocative, slogan about the current state of the world economy: right now, debtors can’t spend, and creditors won’t spend. You can see this dynamic very clearly if you look at European governments. Europe’s debtor nations, the countries like Greece and Spain that borrowed a lot of money during the good years before the crisis (mostly to finance private spending, not government spending, but leave that aside for now), are all facing fiscal crises: they either can’t borrow money at all, or can do so only at extremely high interest rates.

The Shifts and the Shocks: What We've Learned--And Have Still to Learn--From the Financial Crisis
by Martin Wolf
Published 24 Nov 2015

So the growth of the stock of money in the hands of the public declines when the growth of bank lending falls. The fourth reason why post-crisis economies are weak is that inflation may become too low or, worse, deflation may set in. Deflation, or falling prices, creates the danger of what the great American economist Irving Fisher called ‘debt deflation’ in the 1930s – rising real level of debt and debt service within a collapsing economy.61 Such debt deflation is already, alas, in progress in parts of the Eurozone. Yet deflation is not only dangerous because of what it does to the real burden of debt; it is also dangerous if it pushes the real rate of interest too high. Equilibrium real interest rates may become strongly negative in a highly leveraged, crisis-hit economy.

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This is because a rapid restoration in competitiveness of countries like Italy or Spain requires falling wages and prices. But falling wages and prices also raise the real burden of debt. The relatively high interest rates on both private and public debt that characterize these economies make the problem of managing debt even harder. This is ‘debt deflation’ – a condition in which debtors are forced to save an ever higher share of their incomes in order to pay down debt, because the latter’s real value is rising over time. The more countries struggle to restore competitiveness and the weaker their growth, the worse the debt trap into which they will fall.

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It has happened, more recently, in small open economies, such as Hong Kong after the Asian financial crisis and the Baltic states after the crises that began in in 2007. This is, in effect, the old gold-standard mechanism. If, however, the authorities let the peg go, the adjustment would be accompanied by a depreciation of the nominal exchange rate. That would obviate debt deflation and the need to cut nominal wages and prices. It is likely, though not certain, that the result would be a swifter and less painful adjustment, without a tidal wave of defaults. All this would have been a big economic mess, but it would not have generated a continent-wide maelstrom. Under such an adjustable-peg exchange-rate system, economic adjustment would have occurred and life would have gone on.

The Price of Time: The Real Story of Interest
by Edward Chancellor
Published 15 Aug 2022

The ‘barbarous relic’, not the price stabilization policy, was ultimately responsible for the Great Depression. This Great Depression narrative is shaped by two seminal texts: Irving Fisher’s ‘Debt-Deflation Theory of Great Depressions’ (1933) and A Monetary History of the United States by Milton Friedman and Anna Schwartz, published thirty years later. Fisher’s initial expectations that the United States would bounce back after the Great Crash turned out to be as misplaced as his earlier views on the stock market. In his debt-deflation paper, Fisher drew on personal experience to describe how debt becomes harder to handle when the price level declines. A vicious cycle opens up as deflation takes hold: borrowers pay down their debts, thereby depressing household spending; the money supply contracts, which causes prices to fall further; and, as a result, borrowers end up owing more in real terms (i.e., after inflation) than at the outset.

…

When policymakers ease monetary conditions to ward off such a benign decline in the price level, people are incentivized to borrow more. As Irving Fisher observed, debt deflation starts from a position of over-indebtedness – a point which Bernanke in his writings on the subject conspicuously overlooks. Thus, Hayek concluded that attempts to avoid a good deflation only make ‘bad’ deflation more likely. Furthermore, the bad deflation that appears during a financial crisis should be viewed as a symptom, rather than a cause of economic malaise. Debt deflation, Hayek concluded, is ‘a secondary phenomenon, a process induced by the maladjustments of industry left over from the boom’.74 While Fisher believed that the slide into deflation after a crisis must be arrested, Hayek argued that attempts to resist a fall in prices would hinder the curative process of recession and keep the economy in a state of imbalance.

…

‘The true story [of the Great Depression],’ maintained the future Federal Reserve chairman Ben Bernanke, ‘is that monetary policy tried overzealously to stop the rise in stock prices.’fn14 The Fed responded to the October Crash by slashing interest rates – the discount rate of the New York Fed went from 6 per cent in October 1929 to 1.5 per cent by the summer of 1931. But the Fed, say its critics, should have done more to prevent a collapse in the money supply. The trouble was that its board members were paralysed with an unjustified fear that any further action would excite another bout of speculation.68 As a result, the Fed allowed a debt deflation to take hold, which further deepened the crisis. These flawed decisions were compounded by the ‘fetters’ of the Gold Standard, which limited the central bankers’ freedom of action: in late 1931, the Fed was forced to raise interest rates after a decline in its gold reserves, and real interest rates (i.e. the cost of borrowing once deflation is taken into account) climbed into double digits.

The Invisible Hands: Top Hedge Fund Traders on Bubbles, Crashes, and Real Money
by Steven Drobny
Published 18 Mar 2010

Yet they are creatures of habit, they don’t like being unorthodox. When the Germans and the Chinese said this is wrong, they all listened. Wouldn’t it be ironic if we find out later that there is only one chance against debt deflation and they all missed it? We are spending all of our time looking for inflation because the Fed will be slow in raising interest rates while the roof is caving in. The private sector’s desire to unburden itself of debt is so great that debt deflation seems much more likely. And if it rolls over with everyone loaded up on risk again, playing commodities and inflation expectations, bonds could go parabolic. The bull market in government bonds is one of the greatest bull markets of all time, and bull markets of that magnitude do not end with a whimper.

…

Debt-fueled overconsumption has historically resulted in a depression, a deep and prolonged recession, or in the case of Japan, a very long stagnation. The common argument, put forward especially by monetarists, is that these episodes occurred and persisted because monetary policy was not eased fast enough or far enough. The Great Macro Experiment, therefore, is an attempt to use aggressive reflationary policies to overcome the effects of debt deflation after the equity bubble burst. We still seem to be in the midst of the Great Macro Experiment, although it is the next phase. It is a hyper-experiment now. The Experiment started with Greenspan, who preemptively and aggressively cut interest rates to head off the looming recession/depression in 2001-2003.

…

We have institutionalized a behavior that defines risk taking as being a function of market deviations rather than the likelihood of losing clients’ money. Things may have changed, and the next 30 years will prove more challenging, especially when viewed through the prism of the last three decades. Today we are faced with the prospect of debt deflation, which we last experienced globally after the crash of 1929. My argument is that it took 30 to 40 years for society to correct for the previous financial excesses. For instance, did you know that in the absence of dividends, there was no real appreciation in the Dow Jones from 1906 to 1974 (see Figure 13.3)?

Manias, Panics and Crashes: A History of Financial Crises, Sixth Edition
by Kindleberger, Charles P. and Robert Z., Aliber
Published 9 Aug 2011

The failures of firms meant that the banks took over title to the properties and sold them, which put further downward pressure on property prices which complicated the business plans of other firms. There was a downward spiral and concern about a debt deflation trap.23 Commercial and industrial enterprises were going bankrupt at a steady rate of 1000 a month. Three large credit unions were rescued by the government. The capital adequacy problems of the banks and insurance companies were compounded by losses on their portfolios of foreign assets. Two economic experts on Japan have characterized the country’s problems for the next decade as ‘debt, deflation, default, demography and deregulation’.24 Commodity prices, asset prices, and monetary policy The reduction in the Bank of Japan’s discount rate, especially after 1986, which touched off the bubble, was stimulated by pressures from the United States and other industrialized countries and rationalized because the price level in Japan was steady.

…

Even though nominal interest rates were low, real interest rates were high because of the declines in the consumer price level, and investment spending was depressed. Japan was in the throes of a very modest debt-deflation cycle at the end of the 1990s as its price level declined by 1 percent a year which led to an exceptionally high level of business failures. Hong Kong was in a debt-deflation cycle for six years following the Asian Financial Crisis; the depreciation of the currencies of virtually all the other Asian countries meant that the international competitive positions of firms producing in Hong Kong were declining.

…

But there was no panic in the money market; interest rates did not increase because the Federal Reserve was providing liquidity to the market.56 In 1893 lack of confidence in the ability of the United States to maintain the gold standard under pressure from the silver interests led to money market pressure, bank failures, and downward pressure on prices of securities.57 The system is one of positive feedback. The debt-deflation cycles involve a decline in prices of assets and commodities which leads to a reduction in the value of collateral and induces banks to call loans or refuse new ones; firms sell commodities and inventories because their prices are in decline, and the decline in prices causes more and more firms to fail.

Endless Money: The Moral Hazards of Socialism
by William Baker and Addison Wiggin
Published 2 Nov 2009

Part 2 begins by discussing what our monetary system looked like prior to the last hundred years, when it was based upon silver and gold. Then moving into the modern era, accepted monetary theory is critically examined. Its applicability to understanding financial crises is weighed. The current meltdown has challenged its basic underlying assumptions, and it was predicted by not a single academic close to the Fed. Either debt deflation or inflation might occur, depending upon how monetary authorities interpret these theories and what this implies for their policy actions. While the political will to print could build in momentum, it may be difficult to ignore the downside pull of having established excess debt relative to our national income that is on the order of $20 trillion to $25 trillion.

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Whatever the storyline, the experience of the United States is that the Great Depression earned its name not only from the depth to which the economy fell by 1932, but also because of its length. While the observations of Higgs are trenchant, if one instead views the period through the simpler explanation of Fisher’s debt deflation theory, the recovery from the Great Depression can be explained by economic actors having repaid debt or had debt extinguished through bankruptcy by 1942, making them feel freer to make use of low interest rates and exploit profitable business expansion. In 1942 total debt including federal, state, and household had fallen to less than 160 percent of GDP from a peak of 300 percent in 1932.

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Economic activity remained depressed through 1941 at the earliest and 1946 at the latest. The Academic Orthodoxy There have been a series of papers dealing with the transmission of the Great Depression, like a disease, through the gold standard. What this orthodoxy does is downplay the true cause as identified by Irving Fisher, debt deflation theory. It is a bit like celebrating the genius of those who strung power lines instead of acknowledging Thomas Edison for inventing the light bulb, Anyos Jedlik the dynamo, or Michael Faraday the alternator. Although the transmission mechanism was also described by Fisher in the 1930s, the first economists to trumpet this new thesis in recent times were Ehsan Choudhri and Levis Kochin in their paper: The Exchange Rate and the International Transmission of Flat-Earth Economics 95 Business Cycle Disturbances.20 In this article, regressions show what Bernanke states in his speech and has echoed in his academic work, that nations remaining on the gold standard were worse off, and those that recovered sooner had abandoned gold earlier.

Wall Street: How It Works And for Whom
by Doug Henwood
Published 30 Aug 1998

U.S. theories of, 137 function, 59 as "fundamental" (Marx), 244 information asymmetry, 172 market share by lending institution, 81 structure, 58-62 subordination to production (Marx), 237 U.S. international position, 61 see also bond markets; debt; money, psychology of credit crunch 0989-92), 158-161 credit gratuitiVioudhon), 302 credit rationing, 172 in Keynes's Treatise, 193-194 crime, business, 252 crises, corporate, financial interests assert power during, 265 crises, financial, 265 financiers' political uses of, 294-297 increasing prominence starting in 1970s, 222 money and, 93-94 Keynes, 202-205 Marx, 232-236 Third World, 110, 294-295 see also bailouts Crotty, James, 229 crowd psychology, 176-177, 185 currency markets, 41^9 crises, economic causes, 44 gold, 46-49 history, 41^4 mechanics and trading volume, 45—46 during trading week, 130-131 underlying values, 44-45 currency swaps, 35 Dale, James Davidson, 104 Davidson, Paul, 242, 243 Debreu, Gerard, 139 debt appropriate underlying assets, 247 as conservatizing force, 66 ideal level, pre-MM, 150 and 1930s depression, 155-158 and political power, 4, 23 reasons to shun, 149 by sector, 58-59 by type (table), 60 see also credit/credit markets; specific sectors debt deflation (Fisher), 157 modern absence of, 234-235 why there was none in early 1990s, 158-161 deficit financing, 297 deflations. See debt deflation (Fisher) Delaney, Kevin, 265 Democratic Party, 87 deposit insurance, 88 Depository Intermediary Deregulation and Monetary Control Act of 1980, 87 depreciation, 140 Depression, 1930s financial mechanisms, 155-158 Friedman and Schwartz on, 200 derivatives, 28-41 custom, 34-37 defined, 28 early, 29 economic logic, 37-41 market-traded standardization and centralization, 32-33 technical details, 29 more complex strategies, 31 motives for, 31 and risk, individual and systemic, 40-41 short selling, 29-30 trading prowess, 32 winners, long-term, 32 development, 322 protectionism and, 300 Dickens, Edwin, 219 DiNapoli, Tom, 180 direct investment vs. portfolio investment, 109 Third World, 110-111 in U.S., dismal returns, 117 disclosure requirements, corporate, 91 discounting, interest rates and, 119-120 distribution Gini index, 115 income CEO vs. worker pay, 239 Manhattan's inequality, 79 polarization in 1920s, 200 wealth, 4, 64-68 dividends, 73, 135 changes in, and excess volatility, 175 payout ratios, and investment, 154 retention ratio, 75 unexpected changes in, 169 yields, 125 dollar, U.S.

…

In a classic paper, Irving Fisher (1933) argued that financial involvement made all the difference between routine downturns (not yet called recessions) and big-time collapses like 1873 and 1929. Typically, such a collapse followed upon a credit-powered boom, which left businesses excessively debt-burdened, unable to cope with an economic slowdown. The process, which he labeled a debt deflation, was fairly simple, and makes great intuitive sense, but it was an argument largely forgotten by mainstream economics in the years after World War II. A mild slowdown, caused perhaps by some shock to confidence, leaves debtors unable to meet their obligations out of current cash flows. To satisfy their creditors, they liquidate assets, which depresses the prices of real goods.

…

Even the extraordinary fiscal stringency of recent years can be seen in this light, as the U.S. government's own financial capacity was severely strained, and deficit reduction kept the brake on real economic activity from the 1990 budget deal onwards (the mirror image of the intensely stimulative Reagan deficits of the 1980s).^^ When the early 1990s recession officially began in July 1990, it was not unreasonable to expect the first debt deflation in 60 years. Total debts of MARKET MODELS nonfinancial corporations (NFCs) were almost 15 times pretax profits, compared with under 11 times in 1929. Interest payments claimed 39% of pretax profits, compared with 14% in 1929.^^ Here again, Bernanke and colleagues (Bernanke and Campbell 1988; Bernanke, Campbell, and Whited 1990 — BCW) have done illuminating work.

The Social Life of Money
by Nigel Dodd
Published 14 May 2014

“Yesterday’s 50 basis-point Fed funds rate cut was a very positive signal that Fed policy makers grasp that we’re facing a debt-deflation Minsky Moment,” he warned in January 2001 (McCulley 2001a: 4). Three months later, he wrote, “Macroeconomic life after bubbles is not a self-correcting process of renewal, but a self-feeding process of debt deflation—to wit, it’s a Minsky Moment” (McCulley 2001b: 4). 40 This expression was first used in relation to the bailout of Continental Illinois in 1984. 41 Irving Fisher also captured the dynamics of debt deflation in “The Debt-Deflation Theory of Great Depressions” (Fisher 1933). 42 Money manager capitalism refers to an economy dominated by fund managers as opposed to banks.

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This speculation is simply what banks rationally do: substituting time deposits for demand deposits, replacing lines of credit with actual credit, varying the efficiency with which reserves are used through interbank transactions in reserves, and selling debt as commercial paper in the open market, further activating short-term cash balances.37 According to Minsky, trouble always starts for Ponzi finance as inflation builds and the authorities try to exorcise it through monetary restraint. Rising interest rates lead to rising debt costs, whereupon “the net worth of previous Ponzi units will quickly evaporate” (Minsky 1992: 8). This situation leads to debt deflation, as units short of cash try to sell out their positions, and asset values rapidly fall. From this point onward, the very financing techniques that had been used to fuel the credit expansion now exaggerate the speed and severity of the contraction. In the later stages of the boom, loan terms would have risen sharply and would increasingly have been financed with short-term borrowings.

…

Keynes described this assumption as a tendency to fall back on convention. It is caused not by an underlying belief that nothing ever changes. Rather, it is an expectation that nothing will change in the near future.38 Just as investors feel relatively secure during a boom, during the subsequent debt deflation, the guiding wisdom is that all debts lead to disaster: “Each state nurtures forces that lead to its own destruction” (Minsky 1975: 126). In April 2006, the IMF’s “Global Financial Stability Report” noted a “growing recognition that the dispersion of credit risk by banks to a broader and more diverse group of investors, rather than warehousing such risks on their balance sheets, has helped to make the banking and overall financial system more resilient” (IMF 2006: 51).

The Corona Crash: How the Pandemic Will Change Capitalism
by Grace Blakeley
Published 14 Oct 2020

‘But however much of a plan they may create’, he added, ‘we still remain under capitalism – capitalism, it is true, in its new stage, but still, unquestionably, capitalism.’ Without emergency action by governments, the coronavirus crisis would have immediately spiralled beyond all control. Fire sales of assets undertaken either by desperate debtors or during insolvency proceedings would have catalysed a process of debt deflation, where falling asset prices increase the real value of outstanding debts.2 Seeing the value of their assets fall relative to their liabilities, even formerly creditworthy households, businesses and financial institutions would have found themselves facing insolvency. This debt-deflationary cycle was avoided at the cost of providing near-unlimited support and guarantees to corporations and financial institutions – in other words, corporate welfare designed to save capitalism from itself.

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But it was not long before these debts began to accrue once again. 37 See, for example, ‘Coronavirus: Cancel the Debts of Countries in the Global South’, Jubilee Debt Campaign, 18 March 2020, jubileedebt.org.uk. 38 Sarah-Jayne Clifton, ‘Coronavirus Could Collapse the World’s Poorest Economies’, Tribune, 11 April 2020, tribunemag.co.uk. 4 Reconstruction 1 ‘Republicans Suddenly Find a Bailout They Can Back’, Politico, 18 March 2020; ‘Trump Pivots to “Phase Two”, Risking More Death to Save Economy’, Bloomberg, 6 May 2020. 2 Irving Fisher, The Debt-Deflation Theory of Great Depressions, Cleveland: Econometric Society, 1933. 3 CEIC Data, ‘Private Consumption: % of GDP by Country Comparison’, 2020, ceicdata.com. 4 Gary Stevenson, ‘Following the Coronavirus Money Trail’, Open Democracy, 27 March 2020. 5 Luke Savage, ‘One Cheque Isn’t Enough’, Jacobin, 26 May 2020. 6 Richard Partington, ‘Living Costs Rising Faster for UK’s Poorest Families Than Richest’, Guardian, 25 April 2019. 7 Claer Barrett, ‘Inside the UK’s Debt Crisis’, Financial Times, 26 April 2019. 8 Richard Partington, ‘UK Households Spend above Their Income for Longest Period Since 1980s’, Guardian, 29 March 2019. 9 Ann Pettifor, The Case for the Green New Deal, London and New York: Verso, 2019. 10 David Wallace-Wells, The Uninhabitable Earth: Life After Warming, New York: Tim Duggan/Random House, 2020. 11 Alejandra Borunda, ‘The Last Five Years Were the Hottest Ever, NASA and NOAA Declare’, National Geographic, 9 April 2019, nationalgeographic.co.uk. 12 Laurie Laybourn-Langton, Lesley Rankin and Darren Baxter, This Is a Crisis: Facing up to the Age of Environmental Breakdown, London: Institute for Public Policy Research, 2019. 13 Will Steffen et al., ‘Trajectories of the Earth System in the Anthropocene’, PNAS August 2018, 115, no. 33: 8252–59, pnas.org. 14 Fiona Harvey, ‘What Is the Carbon Bubble and What Will Happen if It Bursts?’

The Death of Money: The Coming Collapse of the International Monetary System
by James Rickards
Published 7 Apr 2014

In deflation, the real value of cash increases, so individuals and businesses hoard cash instead of spending it or investing in new land, plant, and equipment. This entire process of asset sales, hoarding, and price declines is called a liquidity trap, famously described by Irving Fisher in his 1933 work The Debt-Deflation Theory of Great Depressions and by John Maynard Keynes in his most influential work, The General Theory of Employment, Interest and Money. In a liquidity trap, the response to money printing is generally weak, and from a Keynesian perspective, fiscal policy is the preferred medicine. While the response to money printing may be weak, it is not nil.

…

Past is not necessarily prelude; still, the combination of extreme leverage, economic weakness, and a looming recession all put the stock market at risk of a historic crash. Any such crash would result in a blow to confidence that no amount of Fed money printing could assuage. It would trigger an extreme version of Fisher’s debt-deflation cycle. In this scenario, deflation would finally gain the upper hand over inflation, and the economic dynamics of the early 1930s would return with a vengeance. Another factor that could contribute to a worst-case result is the hidden leverage on bank balance sheets in the form of derivatives and asset swaps.

…

The contract theory of money has philosophical and legal roots as old as Aristotle and, in more recent centuries, John Locke and Samuel von Pufendorf. It is presented here in an updated version for the purpose of illuminating the intrinsic rather than extrinsic value of money. the quantity theory of money . . . : Irving Fisher, “The Debt-Deflation Theory of Great Depressions,” Econometrica (1933), available from the Federal Reserve Bank of St. Louis, http://fraser.stlouisfed.org/docs/meltzer/fisdeb33.pdf; and Milton Friedman, Studies in the Quantity Theory of Money (Chicago: University of Chicago Press, 1967). the state theory of money . . . : Georg Friedrich Knapp, The State Theory of Money (San Diego: Simon, 2003).

Paper Promises
by Philip Coggan
Published 1 Dec 2011

The second problem was outlined in the last chapter. A lot of debt is secured against asset values. If debtors have to sell assets to repay loans, the price of those assets will fall, lowering the collateral of all lenders. The value of the debt is fixed; the value of the assets is variable. The danger is a debt-deflation spiral, first described by Irving Fisher in the 1930s,22 in which falling prices depress activity. Consumers never spend today on the grounds that goods will be cheaper tomorrow. Fisher described a process with nine links. Debt liquidation leads to distress selling, followed by a contraction of the deposit currency, a fall in prices, a greater fall in the net worth of businesses, a decline in profits, falls in output and employment, resulting in loss of confidence, hoarding and disruptions to interest rates.

…

The combination of paper money and the adoption of floating exchange rates, in the developed world at least, facilitated a massive increase in the volume of debt. While individual countries can recover from debt crises, global debt crises are much more dangerous. The problems experienced in the 1930s – the debt/deflation spiral, the paradox of thrift – have returned. Let us start with some simplified sums. Assume that a country has government debt equivalent to 100 per cent of its GDP, or annual output. And let us assume that the average interest rate on its debt is 5 per cent. This means the government pays out 5 per cent of economic output in interest payments.

…

Mohanty and Fabrizio Zampolli, ‘The Future of Public Debt: Prospects and Implications’, Bank for International Settlements, Working Papers 300. 21 Quoted in Arnaud Mares, ‘Ask Not Whether Governments Will Default, But How’, Morgan Stanley research note, 20 September 2010. 22 Irving Fisher, ‘The Debt-Deflation Theory of Great Depressions’, Econometrica , 1 (4), 1933. 23 Reinhart and Rogoff, in ‘Ask Not Whether Governments Will Default’. 24 For a sweeping critique, see John Irons and Josh Bivens, ‘Government Debt and Economic Growth: Overreaching Claims of Debt “Threshold” Suffer from Theoretical and Empirical Flaws’, Economic Policy Institute briefing paper no. 271, July 2010. 25 Antonio Afonso and Davide Furceri, ‘Government Size, Composition, Volatility and Economic Growth’, School of Economics and Management, Technical University of Lisbon, working paper ISSN 0874-4548, January 2008. 11 .

Capitalism in America: A History
by Adrian Wooldridge and Alan Greenspan
Published 15 Oct 2018

Even Britain, which had championed free trade since the repeal of the Corn Laws in 1846, embraced protectionism in February 1932, by raising tariffs and providing special preferences for the empire and a few favored trading partners. The volume of global business shrunk from some $36 billion of traffic in 1929 to about $12 billion by 1932.17 The Depression’s tendency to feed on itself was reinforced by what Irving Fisher called “debt deflation.” The explosion of lending in the 1920s had worked very well so long as people earned a regular (and rising) income. The combination of rising unemployment and stagnating (or falling) real incomes magnified economic problems. Society’s debt obligations rose while its ability to meet those obligations declined.

…

Society’s debt obligations rose while its ability to meet those obligations declined. Deflation forced debtors to reduce consumption, leading to more declines in prices. Declines in prices led to general economic contraction. By the beginning of 1934, more than a third of homeowners in the average American city were behind in their mortgage payments. Debt deflation also amplified the malign effects of tariffs in general and Smoot-Hawley’s new tariffs in particular. Tariffs were levied on the volume of imports (so many cents per pound, say) rather than value. So as deflation took hold after 1929, effective tariff rates climbed, discouraging imports. By 1932, the average American tariff on dutiable imports was 59 percent, higher than it had ever been before except for a brief moment in 1830.

…

By 1932, the average American tariff on dutiable imports was 59 percent, higher than it had ever been before except for a brief moment in 1830. If the Tariff Act raised duties by 20 percent, deflation accounted for half as much again. Global trade collapsed. In 1932, U.S. imports and exports were both one-third of what they had been in 1929. Debt deflation was pronounced in agriculture. American farmers had thrived as never before during the Great War because their European competitors were frequently unable to operate. Agricultural prices doubled during the war as foreign demand surged, and farmers borrowed heavily in order to invest in agricultural machinery or reclaim marginal land.

The Rise of Carry: The Dangerous Consequences of Volatility Suppression and the New Financial Order of Decaying Growth and Recurring Crisis
by Tim Lee , Jamie Lee and Kevin Coldiron
Published 13 Dec 2019

This is what they believe. The earlier chart (Figure 7.1) showed household holdings of money as a percentage of total household financial assets. Figure 7.3 shows money as a percentage of GDP. Looked at in this way, deposits have recaptured most of the loss that took place during the 1990s. Given the tendency to debt deflation, this is reasonable, but it still falls short of what might have been expected. 60 55 50 45 40 35 30 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 2018 FIGURE 7.3 US household holdings of money as a percentage of GDP Source of data: Federal Reserve Board, US Bureau of Economic Analysis The picture changes when we look at Figure 7.4.

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The Monetary Ramifications of the Carry Regime 121 This perspective can then help to explain more simply phenomena that were observable in the years leading up to the 2007–2009 financial crisis and subsequently. First, as should be expected in the wake of a huge financial crisis and with an underlying trend toward debt deflation, the demand to hold money actually did rise substantially. Second, that increased desire to hold money was at least partly satisfied by the perception of what constitutes a monetary asset being hugely broadened as a result of central bank actions. From a monetary perspective this is the essence of the carry regime.

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See also currency carry trades bailouts of, 197, 198 central bank balance sheets as, 216–217 in commodities, 128–129 credit growth and, 37–42 in dollars, 14–23, 15f, 16f Euro-funded, 31 exchange rate stability and returns from, 52 INDEX by Federal Reserve, 103 government policies and returns from, 48 by hedge funds, 73–75 leverage in, 33–35 leveraged buyouts as, 78–80 as liquidity-providing trades, 35–36 measuring flow of, 41 non-currency forms of, 34 oil, 128–133 profit explanation attempts for, 48 sovereign wealth funds and, 75–76 S&P 500 as, 160–162 carry trades characteristics of, 3–5 defining, 2 risk of, 3, 5 sawtooth return pattern of, 4 short volatility of, 4 types of, 4 cash yields, 204 CBOE (Chicago Board Options Exchange), 57 CDOs (collateralized debt obligations), 36–37, 95, 135 CDS (credit default swap), 34, 36, 135 celebrity, 186, 187 central banks balance sheets of, as carry trades, 216–217 carry and, 5–8 carry regime and policies of, 86–89, 107, 208, 210 carry regime and power of, 123 carry regime collapses and, 215–216 carry regime weakening, 7 credit demand and, 13 deflationary pressures and, 115 foreign exchange markets and, 11, 13, 20 interventionist policies of, 201–202 liquidity and, 110–111 market stabilization by, 5–6 moral hazard and, 195, 200 volatility selling by, 101–105 Chicago Board Options Exchange (CBOE), benchmark indexes by, 57 China, 19 circular flow of dollars, 18–19, 18f classical equilibrium model of economy, 142 currency carry trade returns and, 10 223 collateralized debt obligations (CDOs), 36–37, 95, 135 Columbia MusicLab, 181–182, 184, 188 commodities, carry trade in, 128–129 compensation incentives hedge fund strategies and, 73 proprietary trading and, 77 constant leverage, 93 consumer price index, Turkey, 44 consumption utility, 100 corporations carry strategies by, 80–83 debt issuance by, 81–83, 82f, 83f share buybacks by, 82, 83f covered interest parity principle, 21, 22 credit Australia growth of, 40f, 41 availability of, 4 carry bubbles and demand for, 114 carry trades and growth of, 37–42 central bank influence on demand for, 13 debt levels and demand for, 114 interest rates and demand for, 110 moral hazard issues and, 199 credit booms, currency carry trades contributing to, 13 credit bubbles carry bubbles and, 37–38, 41 mid-2000s, 36 credit carry trades, risk mispricing and, 35–37 credit default swap (CDS), 34, 36, 135 credit demand, 13 credit derivatives, 135 cross-currency basis, 22 cryptocurrencies, 211, 212 cumulative advantage carry as, 181–184 evolution and, 188–190 self-perpetuation and, 186–188 currency carry trades, 9, 129 academic interest in, 47–49 covered interest parity principle and, 21–22 credit bubbles and, 36 credit creation by, 20 current account deficits and, 17 emerging markets and returns from, 55 equity carry correlation with, 56–59, 58f 224 currency carry trades (continued) equity volatility and returns from, 59 exchange rate risks of, 17 exchange rate stability and returns from, 52 expected returns, 10 global financial crisis of 2007-2009 and, 28–29 historical returns, 50–52, 50f, 51f, 53f history of, 23–31, 24f identifying, 11–12 interest rate differentials and returns from, 60–62 Japan and, 17–18 liquidity provision and, 88 liquidity swaps and, 104–105 market pricing efficiency and, 11 money supply effects of, 20–21 net claims as proxy for measuring, 41 portfolio for analyzing, 49–50 real economy links with, 56 United States and, 17–20 volatility signs of collapse in, 215 currency markets, 10 currency risk, 12 currency risk aversion, 13 currency volatility, 62 current account deficit of Thailand, 25 of United States, 17 debt. See also collateralized debt obligations carry regime and levels of, 168 corporate issuance of, 81–83, 82f, 83f credit demand and levels of, 114 deflation from high levels of, 114 of oil producers, 130 Turkish, 202 debt deflation, 119, 121 deflation carry crashes and, 170 carry regime and, 113–121, 203, 210, 213 central bank interventions and, 115 debt, 119, 121 debt levels and, 114 deflation shock, 7, 121–124 deleveraging, 98 short squeezes on liquidity and, 165 INDEX delta, 149 delta hedging, 149–151 Depp, Johnny, 184 Divisia money, 111 dollar (US) carry trade in, 14–23, 15f, 16f circular flow of, 14–23 dominant international financial system role of, 22, 196 value of, 100 dollars, circular flow of, 18–19, 18f Doyle, Joseph, 59 economic indicators, 56 carry bubbles distorting, 44–45 emerging currencies, 55, 55n6 liquidity of, 62 emerging markets carry crashes in, 201 carry strategy returns and, 55 employee compensation hedge funds and, 73 proprietary trading and, 77 reporting horizons and, 71 equity leverage and, 93–94 volatility of, currency carry returns and, 59 volatility premiums in, 162 equity carry trade, currency carry correlation with, 56–59, 58f equity indexes, sovereign bonds correlation to, 161 equity risk trades, S&P 500 correlation with, 99 ETFs (exchange-traded funds), 111–112 ETNs (exchange-traded notes), 90, 92 EU.

The Global Minotaur
by Yanis Varoufakis and Paul Mason
Published 4 Jul 2015

But since, at the level of the national economy, society’s overall demand is the sum of private and public expenditure, when a large segment of the business community tries to reduce debt (by cutting expenditure), overall demand declines, sales drop, businesses close their doors, unemployment rises and prices fall. As prices fall, consumers decide to wait for them to fall further before buying costly items. A vicious debt–deflation cycle thus takes hold. Now, since this is a deficit country, the government is more likely than not to be labouring under an already considerable budget deficit (with tax revenue less than expenditure) and a large accumulated public debt. The recession squeezes taxes, boosts the state’s deficit and forces the government to pay higher interest rates to service its increasing debts.

…

The proposal was both simple and audacious: the ICU would grant each member country an overdraft facility, i.e. the right to borrow at zero interest from the international central bank. Loans in excess of 50 per cent of a deficit country’s average trade volume (measured in bancors) would also be made, but at the cost of a fixed interest rate. In this manner, deficit countries would be given the flexibility to boost demand in order to arrest any debt–deflation cycle without having to devalue the currency. At the same time, there would be a penalty for excess trade surpluses: recognizing that a systematic surplus is the obverse of a systematic deficit, Keynes’ proposal stipulated that any country with a trade surplus that exceeded a certain percentage of its trade volume should be charged interest, which would force its currency to appreciate.

…

ABN-Amro, takeover by RBS, 119–20 ACE (aeronautic–computer–electronics) complex, 83 Acheson, Dean, 68 Adenauer, Konrad, 74 Afghanistan, proposed US invasion, 106–7 Africa: colonization, 79; investment in, 214, 218, 252, 253 agriculture, 26, 31 AIG (American Insurance Group), 150, 153, 159 Akins, James, 97 Allied Control Council, 70 America see US (United States) American Civil War, 40 Anglo-Celtic model, 12–13, 23, 117, 199 Anglo-Celtic societies, 20, 128–9 Anglo Irish Bank, 158 Angola, effect of China on, 214–15 AOL-Time Warner, 117 apartheid, in the US, 84 aporia, 1, 3–4, 25, 33, 146 Argentina: Crash of 2008, 163; currency unions, 61, 65; effect of China on, 215, 218; financial crisis, 190; trade with Asia, 215 asabiyyah (solidarity), 33–4 Asia: investment in, 191, 215; investors from, 175; reaction to the Crash of 2008, 13; surplus output, 184; US-controlled, 78 see also East Asia; South East Asia; specific countries ATMs (automated telling machines): virtual, 8, 9; Volcker on, 122 Australia: effect of China on, 214; house prices, 128, 129, 129; Reserve Bank, 160 balance, global, 22 Bank of America, 153, 157, 158 Bank of Canada, 148, 155 Bank of Denmark, 157 Bank of England: and Barings Bank, 40; and the Crash of 2008, 151, 155, 156, 158; and Northern Rock, 148; rates, 148, 159 Bank of Japan, 148, 187, 189 Bank of Sweden, 157 bankruptocracy, 164–8, 169, 191, 230, 236, 237, 250 banks: bonuses, 8; and the EFSF, 175; main principle of, 130; nationalization, 153, 154, 155, 158; Roosevelt’s regulations, 10; runs on, 148; zombie, 190–1 see also specific banks Barclays Bank, 151, 152 Barings Bank, 40 bauxite, prices, 96 Bear Stearns, 147, 151 Belgium, 75, 79, 120, 154, 196 Berlin crisis, 71 Berlin Wall, demolition, 201 Bernanke, Ben, 147, 148, 164, 230, 231, 233, 234 Big Bang, 138 bio-fuels, 163 biological weapons, 27 Black Monday, 2, 10 Blake, William, 29 BNP-Paribas, 147–8 boom to bust cycle, 35 Bradford and Bingley, 154 Brazil: Crash of 2008, 163; effect of China on, 215, 217, 218, 253; trade with Asia, 215 Bretton Woods conference, 58–61, 62, 64, 254–5 Bretton Woods system, 60, 62, 63, 67, 78, 92–3; end, 94, 95–6 Britain: Crash of 2008, 2, 159; crisis of 1847, 40; devaluing of the pound, 93; economy under Thatcher, 136–7; Global Plan, 69; gold request, 94; Gold Standard, 44; Icelandic bank nationalization, 155; labour costs, 105; Plaza Accord, 188; stance on Cyprus, 79; stance on India, 79; unemployment rate, 160 British Academy, 4, 5, 6 Buffet, Warren, 8 bureaucracies, rise of, 27 Bush, George W., 149, 156, 157 Byrnes, James, 68 capital, and the human will, 18–19 capitalism: dynamic system, 139–40; free market, 68; generation of crises, 34; global, 58, 72, 114, 115, 133; Greenspan and, 11–12; Marxism, 17–18; static system, 139; supposed cure for poverty, 41–2; surplus recycling mechanisms, 64–5 capitalists, origin of, 31 car production, 70, 103, 116, 157–8 carry trade, 189–90 Carter, Jimmy, 99, 100 CDOs (collateralized debt obligations), 141–2, 147–8, 149, 150, 153; for crops, 163; eurozone, 205; explanation, 6–9; France, 203; function, 130–2; Greece, 206 see also EFSF; Geithner–Summers Plan CDSs (credit default swaps), 149, 150, 153, 154, 176, 177 CEOs (chief executive officers), 46, 48, 49 Chamber of Commerce, British, 152 cheapness, ideology of, 124 Chiang Kai-shek, 76 Chicago Commodities Exchange, 120 Chicago Futures Exchange, 163 China: aggregate demand, 245; Crash of 2008, 156, 162; currency, 194, 213, 214, 217, 218, 252; economic development, 106–7; effects of the Crash of 2008, 3; financial support for the US, 216; global capital, 116; Global Plan, 76; growth, 92; rise and impact, 212–18, 219–20 Chrysler, 117, 159 CIA (Central Intelligence Agency), 69 Citigroup, 149, 156, 158 City of London: Anglo-Celtic model, 12; Crash of 2008, 148, 152; debt in relation to GDP, 4–5; financialization, 118–19; under Thatcher, 138; wealth of merchants, 28 civilization, 27, 29–30, 128 Clinton, Hillary, 212, 215–16 Cold War, 71, 80, 81, 86 collateralized debt obligations see CDOs commodification: resistance to, 53–4; rise of, 30, 33, 54; of seeds, 175 commodities: global, 27–8; human nature not, 53; labour as, 45, 49, 54; money as, 45, 49; prices, 96, 98, 102, 125; trading, 31, 175 common market, European, 195 communism, collapse of, 22, 107–8 complexity, and economic models, 139–40 Condorcet, Nicholas de Caritat, marquis de, 29, 32 Congress (US): bail-outs, 77, 153–4, 155; import tariff bill, 45 Connally, John, 94–5 council houses, selling off, 137, 138 Crash of 1907, 40 Crash of 1929, 38–43, 44, 181 Crash of 2008, 146–68; aftermath, 158–60; chronicle, 2007, 147–9; chronicle, 2008, 149, 151–8; credit default swaps, 150; effects, 2–3; epilogue, 164–8; explanations, 4–19; in Italy, 237; review, 160–4; in Spain, 237; warnings, 144–5 credit crunch, 149, 151 credit default swaps (CDSs), 149, 150, 153, 154, 176, 177 credit facilities, 127–8 credit rating agencies, 6–7, 8, 9, 20, 130 crises: as laboratories of the future, 28; nature of, 141; pre-1929, 40; pre-2008, 2; proneness to, 30; redemptive, 33–5, 35 currency unions, 60–1, 61–2, 65, 251 Cyprus, Britain’s role in, 69, 79 Daimler-Benz, 117 DaimlerChrysler, 117 Darling, Alistair, 159 Darwinian process, 167 Das Kapital (Marx), 49 de Gaulle, Charles, 76, 93 Debenhams, takeover of, 119 debt: and GDP, 4–5; unsecured, 128; US government, 92; US households, 161–2 see also CDOs; leverage debt–deflation cycle, 63 deficits: in the EU, 196; US budget, 22–3, 25, 112, 136, 182–3, 215–16; US trade, 22–3, 25, 111, 182–3, 196, 227 Deng Xiao Ping, 92, 212 Depressions: US 1873–8, 40; US Great Depression, 55, 58, 59, 80 deregulations, 138, 143, 170 derivatives, 120, 131–2, 174, 178 Deutschmark, 74, 96, 195, 197 Dexia, 154 distribution, and production, 30, 31, 54, 64 dollar: devaluing, 188; flooding markets, 92–3; pegging, 190; reliance on, 57, 60, 102; value of, 96, 204; zone, 62, 78, 89, 164 dotcom bubble, 2, 5 Draghi, Mario, 239 East Asia, 79, 143, 144, 194 see also Asia; specific countries East Germany, 201, 202 see also Germany Eastern Europe, 108, 198, 203 ECB (European Central Bank): aftermath of Crash of 2008, 158; bank bail-outs, 203, 204; Crash of 2008, 148, 149, 155, 156, 157; European banking crisis, 208, 209–10; Greek crisis, 207; LTRO, 238; Maastricht Treaty, 199–200; toxic theory, 15 economic models, 139–42 Economic Recovery Advisory Board (ERAB), 180, 181 Economic Report of the President (1999), 116 ECSC (European Coal and Steel Community), 74, 75–6 Edison, Thomas, 38–9 Efficient Market Hypothesis (EMH), 15 EFSF (European Financial Stability Facility), 174, 175–7, 207, 208–9 EIB (European Investment Bank), 210 Eisenhower, Dwight D., 82 Elizabeth II, Queen, 4, 5 ERAB (Economic Recovery Advisory Board), 180, 181 ERM (European Exchange Rate Mechanism), 197 EU (European Union): economies within, 196; EFSF, 174; European Financial Stability Mechanism, 174; financial support for the US, 216; origins, 73, 74, 75; SPV, 174 euro see eurozone eurobonds, toxic, 175–7 Europa myth, 201 Europe: aftermath of Crash of 2008, 162; bank bail-outs, 203–5; Crash of 2008, 2–3, 12–13, 183; end of Bretton Woods system, 95; eurozone problems, 165; Geithner–Summers Plan, 174–7; oil price rises, 98; unemployment, 164 see also specific countries European Central Bank see ECB European Coal and Steel Community (ECSC), 74, 75–6 European Commission, 157, 203, 204 European Common Market, 195 European Exchange Rate Mechanism (ERM), 197 European Financial Stability Facility (EFSF), 174, 207, 208–9 European Financial Stability Mechanism, 174, 175–7 European Investment Bank (EIB), 210 European Recovery Progam see Marshall Plan European Union see EU eurozone, 61, 62, 156, 164; crisis, 165, 174, 204, 208–9, 209–11; European banks’ exposure to, 203; formation of, 198, 202; France and, 198; Germany and, 198–201; and Greek crisis, 207 exchange rate system, Bretton Woods, 60, 63, 67 falsifiability, empirical test of, 221 Fannie Mae, 152, 166 Fed, the (Federal Reserve): aftermath of Crash of 2008, 159; Crash of 2008, 148, 149, 151, 153, 155, 156, 157; creation, 40; current problems, 164; Geithner–Summers Plan, 171–2, 173, 230; Greenspan and, 3, 10; interest rate policy, 99; sub-prime crisis, 147, 149; and toxic theory, 15 feudalism, 30, 31, 64 Fiat, 159 finance: as a pillar of industry, 31; role of, 35–8 Financial Crisis Inquiry Commission, 166 financialization, 30, 190, 222 First World War, Gold Standard suspension, 44 food: markets, 215; prices, 163 Ford, Henry, 39 formalist economic model, 139–40 Forrestal, James, 68 Fortis, 153 franc, value against dollar, 96 France: aid for banks, 157; colonialism criticized, 79; EU membership, 196; and the euro, 198; gold request, 94; Plaza Accord, 188; reindustrialization of Germany, 74; support for Dexia, 154 Freddie Mac, 152, 166 free market fundamentalism, 181, 182 French Revolution, 29 G7 group, 151 G20 group, 159, 163–4 Galbraith, John Kenneth, 73 GATT (General Agreement on Tariffs and Trade), 78 GDP (Gross Domestic Product): Britain, 4–5, 88, 158; eurozone, 199, 204; France, 88; Germany, 88, 88; Japan, 88, 88; US, 4, 72, 73, 87, 88, 88, 161; world, 88 Geithner–Summers Plan, 159, 169–83; in Europe, 174–7; results, 178–81; in the US, 169–74, 170, 230 Geithner, Timothy, 170, 173, 230 General Motors (GM), 131–2, 157–8, 160 General Theory (Keynes), 37 geopolitical power, 106–8 Germany: aftermath of the Second World War, 68, 73–4; competition with US, 98, 103; current importance, 251; and Europe, 195–8; and the eurozone, 198–201, 211; global capital, 115–16; Global Plan, 69, 70; Greek crisis, 206; house prices, 129; Marshall Plan, 73; reunification, 201–3; support for Hypo Real Estate, 155; trade surplus, 251; trade surpluses, 158 Giscard d’Estaing, Valery, 93 Glass–Steagall Act (1933), 10, 180 global balance, 22 global imbalances, 251–2 Global Plan: appraisal, 85–9; architects, 68; end of, 100–1, 182; geopolitical ideology, 79–82; Germany, 75; Marshall Plan, 74; origins, 67–71; real GDP per capita, 87; unravelling of, 90–4; US domestic policies, 82–5 global surplus recycing mechanism see GSRM global warming, 163 globalization, 12, 28, 125 GM (General Motors), 131–2, 157–8, 160 gold: prices, 96; rushes, 40; US reserves, 92–3 Gold Exchange Standard, collapse, 43–5 Goodwin, Richard, 34 Great Depression, 55, 58, 59, 80 Greece: currency, 205; debt crisis, 206–8 greed, Crash of 2008, 9–12 Greek Civil War, 71, 72, 79 Greenspan, Alan, 3, 10–11 Greenwald, Robert, 125–6 Gross Domestic Product see GDP GSRM (global surplus recycling mechanism), 62, 66, 85, 90, 109–10, 222, 223, 224, 248, 252–6 HBOS, 153, 156 Heath, Edward, 94 hedge funds, 147, 204; LTCM, 2, 13; toxic theory, 15 hedging, 120–1 history: consent as driving force, 29; Marx on, 178; as undemocratic, 28 Ho Chi Minh, 92 Holland, 79, 120, 155, 196, 204 home ownership, 12, 127–8; reposessions, 161 Homeownership Preservation Foundation, 161 Hoover, Herbert, 42–3, 44–5, 230 House Committee on Un-American Activities, 73 house prices, 12, 128–9, 129, 138; falling, 151, 152 human nature, 10, 11–12 humanity, in the workforce, 50–2, 54 Hypo Real Estate, 155 Ibn Khaldun, 33 IBRD (International Bank for Reconstruction and Development) see World Bank Iceland, 154, 155, 156, 203 ICU (International Currency Union) proposal, 60–1, 66, 90, 251 IMF (International Monetary Fund): burst bubbles, 190; cost of the credit crunch, 151; Crash of 2008, 155–6, 156, 159; demise of social services, 163; on economic growth, 159; European banking crisis, 208; G20 support for, 163–4; Greek crisis, 207; origins, 59; South East Asia, 192, 193; Third World debt crisis, 108; as a transnational institution, 253, 254 income: distribution, 64; national, 42; US national, 43 India: Britain’s stance criticized, 79; Crash of 2008, 163; suicides of farmers, 163 Indochina, and colonization, 79 Indonesia, 79, 191 industrialization: Britain, 5; Germany, 74–5; Japan, 89, 185–6; roots of, 27–8; South East Asia, 86 infinite regress, 47 interest rates: CDOs, 7; post-Global Plan, 99; prophecy paradox, 48; rises in, 107 International Bank for Reconstruction and Development (IBRD) see World Bank International Currency Union (ICU) proposal, 60–1, 66, 90, 253 International Labour Organisation, 159 International Monetary Fund see IMF Iran, Shah of, 97 Ireland: bankruptcy, 154, 156; EFSF, 175; nationalization of Anglo Irish Bank, 158 Irwin, John, 97 Japan: aftermath of the Second World War, 68–9; competition with the US, 98, 103; in decline, 186–91; end of Bretton Woods system, 95; financial support for the US, 216; global capital, 115–16; Global Plan, 69, 70, 76–8, 85–6; house prices, 129; labour costs, 105; new Marshall Plan, 77; Plaza Accord, 188; post-war, 185–91; post-war growth, 185–6; relations with the US, 187–8, 189; South East Asia, 91, 191–2; trade surpluses, 158 joblessness see unemployment Johnson, Lyndon B.: Great Society programmes, 83, 84, 92; Vietnam War, 92 JPMorgan Chase, 151, 153 keiretsu system, Japan, 186, 187, 188, 189, 191 Kennan, George, 68, 71 Kennedy, John F., New Frontier social programmes, 83, 84 Keynes, John Maynard: Bretton Woods conference, 59, 60, 62, 109; General Theory, 37; ICU proposal, 60, 66, 90, 109, 254, 255; influence on New Dealers, 81; on investment decisions, 48; on liquidity, 160–1; trade imbalances, 62–6 Keynsianism, 157 Kim Il Sung, 77 Kissinger, Henry, 94, 98, 106 Kohl, Helmut, 201 Korea, 91, 191, 192 Korean War, 77, 86 labour: as a commodity, 28; costs, 104–5, 104, 105, 106, 137; hired, 31, 45, 46, 53, 64; scarcity of, 34–5; value of, 50–2 labour markets, 12, 202 Labour Party (British), 69 labourers, 32 land: as a commodity, 28; enclosure, 64 Landesbanken, 203 Latin America: effect of China on, 215, 218; European banks’ exposure to, 203; financial crisis, 190 see also specific countries lead, prices, 96 Lebensraum, 67 Left-Right divide, 167 Lehman Brothers, 150, 152–3 leverage, 121–2 leveraging, 37 Liberal Democratic Party (Japan), 187 liberation movements, 79, 107 LIBOR (London Interbank Offered Rate), 148 liquidity traps, 157, 190 Lloyds TSB, 153, 156 loans: and CDOs, 7–8, 129–31; defaults on, 37 London School of Economics, 4, 66 Long-Term Capital Management (LTCM) hedge fund collapse, 13 LTCM (Long-Term Capital Management) hedge fund collapse, 2, 13 Luxembourg, support for Dexia, 154 Maastricht Treaty, 199–200, 202 MacArthur, Douglas, 70–1, 76, 77 machines, and humans, 50–2 Malaysia, 91, 191 Mao, Chairman, 76, 86, 91 Maresca, John, 106–7 Marjolin, Robert, 73 Marshall, George, 72 Marshall Plan, 71–4 Marx, Karl: and capitalism, 17–18, 19, 34; Das Kapital, 49; on history, 178 Marxism, 181, 182 Matrix, The (film), 50–2 MBIA, 149, 150 McCarthy, Senator Joseph, 73 mercantilism, in Germany, 251 merchant class, 27–8 Merkel, Angela, 158, 206 Merrill Lynch, 149, 153, 157 Merton, Robert, 13 Mexico: effect of China on, 214; peso crisis, 190 Middle East, oil, 69 MIE (military-industrial establishment), 82–3 migration, Crash of 2008, 3 military-industrial complex mechanism, 65, 81, 182 Ministry for International Trade and Industry (Japan), 78 Ministry of Finance (Japan), 187 Minotaur legend, 24–5, 25 Minsky, Hyman, 37 money markets, 45–6, 53, 153 moneylenders, 31, 32 mortgage backed securities (MBS) 232, 233, 234 NAFTA (North American Free Trade Agreement), 214 National Bureau of Economic Research (US), 157 National Economic Council (US), 3 national income see GDP National Security Council (US), 94 National Security Study Memorandum 200 (US), 106 nationalization: Anglo Irish Bank, 158; Bradford and Bingley, 154; Fortis, 153; Geithner–Summers Plan, 179; General Motors, 160; Icelandic banks, 154, 155; Northern Rock, 151 NATO (North Atlantic Treaty Organization), 76, 253 negative engineering, 110 negative equity 234 neoliberalism, 139, 142; and greed, 10 New Century Financial, 147 New Deal: beginnings, 45; Bretton Woods conference, 57–9; China, 76; Global Plan, 67–71, 68; Japan, 77; President Kennedy, 84; support for the Deutschmark, 74; transfer union, 65 New Dealers: corporate power, 81; criticism of European colonizers, 79 ‘new economy’, 5–6 New York stock exchange, 40, 158 Nietzsche, Friedrich, 19 Nixon, Richard, 94, 95–6 Nobel Prize for Economics, 13 North American Free Trade Agreement (NAFTA), 214 North Atlantic Treaty Organization (NATO), 76 North Korea see Korea Northern Rock, 148, 151 Obama administration, 164, 178 Obama, Barack, 158, 159, 169, 180, 230, 231 OECD (Organisation for Economic Co-operation and Development), 73 OEEC (Organisation for European Economic Co-operation), 73, 74 oil: global consumption, 160; imports, 102–3; prices, 96, 97–9 OPEC (Organization of the Petroleum Exporting Countries), 96, 97 paradox of success, 249 parallax challenge, 20–1 Paulson, Henry, 152, 154, 170 Paulson Plan, 154, 173 Penn Bank, 40 Pentagon, the, 73 Plaza Accord (1985), 188, 192, 213 Pompidou, Georges, 94, 95–6 pound sterling, devaluing, 93 poverty: capitalism as a supposed cure for, 41–2; in China, 162; reduction in the US, 84; reports on global, 125 predatory governance, 181 prey–predator dynamic, 33–5 prices, flexible, 40–1 private money, 147, 177; Geithner–Summers Plan, 178; toxic, 132–3, 136, 179 privatization, of surpluses, 29 probability, estimating, 13–14 production: cars, 70, 103, 116, 157–8; coal, 73, 75; costs, 96, 104; cuts in, 41; in Japan, 185–6; processes, 30, 31, 64; steel, 70, 75 production–distribution cycle, 54 property see real estate prophecy paradox, 46, 47, 53 psychology, mass, 14 public debt crisis, 205 quantitative easing, 164, 231–6 railway bubbles, 40 Rational Expectations Hypothesis (REH), 15–16 RBS (Royal Bank of Scotland), 6, 151, 156; takeover of ABN-Amro, 119–20 Reagan, Ronald, 10, 99, 133–5, 182–3 Real Business Cycle Theory (RBCT), 15, 16–17 real estate, bubbles, 8–9, 188, 190, 192–3 reason, deferring to expectation, 47 recession predictions, 152 recessions, US, 40, 157 recycling mechanisms, 200 regulation, of banking system, 10, 122 relabelling, 14 religion, organized, 27 renminbi (RMB), 213, 214, 217, 218, 253 rentiers, 165, 187, 188 representative agents, 140 Reserve Bank of Australia, 148 reserve currency status, 101–2 risk: capitalists and, 31; riskless, 5, 6–9, 14 Roach, Stephen, 145 Robbins, Lionel, 66 Roosevelt, Franklin D., 165; attitude towards Britain, 69; and bank regulation, 10; New Deal, 45, 58–9 Roosevelt, Theodore (‘Teddy’), 180 Royal Bank of Scotland (RBS), 6, 151, 156; takeover of ABN-Amro, 119–20 Rudd, Kevin, 212 Russia, financial crisis, 190 Saudi Arabia, oil prices, 98 Scandinavia, Gold Standard, 44 Scholes, Myron, 13 Schopenhauer, Arthur, 19 Schuman, Robert, 75 Schumpter, Joseph, 34 Second World War, 45, 55–6; aftermath, 87–8; effect on the US, 57–8 seeds, commodification of, 163 shares, in privatized companies, 137, 138 silver, prices, 96 simulated markets, 170 simulated prices, 170 Singapore, 91 single currencies, ICU, 60–1 slave trade, 28 SMEs (small and medium-sized enterprises), 186 social welfare, 12 solidarity (asabiyyah), 33–4 South East Asia, 91; financial crisis, 190, 191–5, 213; industrialization, 86, 87 South Korea see Korea sovereign debt crisis, 205 Soviet Union: Africa, 79; disintegration, 201; Marshall Plan, 72–3; Marxism, 181, 182; relations with the US, 71 SPV (Special Purpose Vehicle), 174 see also EFSF stagflation, 97 stagnation, 37 Stalin, Joseph, 72–3 steel production, in Germany, 70 Strauss-Kahn, Dominique, 60, 254, 255 Summers, Larry, 230 strikes, 40 sub-prime mortgages, 2, 5, 6, 130–1, 147, 149, 151, 166 success, paradox of, 33–5, 53 Suez Canal trauma, 69 Suharto, President of Indonesia, 97 Summers, Larry, 3, 132, 170, 173, 180 see also Geithner–Summers Plan supply and demand, 11 surpluses: under capitalism, 31–2; currency unions, 61; under feudalism, 30; generation in the EU, 196; manufacturing, 30; origin of, 26–7; privatization of, 29; recycling mechanisms, 64–5, 109–10 Sweden, Crash of 2008, 155 Sweezy, Paul, 73 Switzerland: Crash of 2008, 155; UBS, 148–9, 151 systemic failure, Crash of 2008, 17–19 Taiwan, 191, 192 Tea Party (US), 162, 230, 231, 281 technology, and globalization, 28 Thailand, 91 Thatcher, Margaret, 117–18, 136–7 Third World: Crash of 2008, 162; debt crisis, 108, 219; interest rate rises, 108; mineral wealth, 106; production of goods for Walmart, 125 tiger economies, 87 see also South East Asia Tillman Act (1907), 180 time, and economic models, 139–40 Time Warner, 117 tin, prices, 96 toxic theory, 13–17, 115, 133–9, 139–42 trade: balance of, 61, 62, 64–5; deficits (US), 111, 243; global, 27, 90; surpluses, 158 trades unions, 124, 137, 202 transfer unions, New Deal, 65 Treasury Bills (US), 7 Treaty of Rome, 237 Treaty of Versailles, 237 Treaty of Westphalia, 237 trickle-down, 115, 135 trickle-up, 135 Truman Doctrine, 71, 71–2, 77 Truman, Harry, 73 tsunami, effects of, 194 UBS, 148–9, 151 Ukraine, and the Crash of 2008, 156 UN Security Council, 253 unemployment: Britain, 160; Global Plan, 96–7; rate of, 14; US, 152, 158, 164 United States see US Unocal, 106 US economy, twin deficits, 22–3, 25 US government, and South East Asia, 192 US Mortgage Bankers Association, 161 US Supreme Court, 180 US Treasury, 153–4, 156, 157, 159; aftermath of the Crash of 2008, 160; Geithner–Summers Plan, 171–2, 173; bonds, 227 US Treasury Bills, 109 US (United States): aftermath of the Crash of 2008, 161–2; assets owned by foreign state institutions, 216; attitude towards oil price rises, 97–8; China, 213–14; corporate bond purchases, 228; as a creditor nation, 57; domestic policies during the Global Plan, 82–5; economy at present, 184; economy praised, 113–14; effects of the Crash of 2008, 2, 183; foreign-owned assets, 225; Greek Civil War, 71; labour costs, 105; Plaza Accord, 188; profit rates, 106; proposed invasion of Afghanistan, 106–7; role in the ECSC, 75; South East Asia, 192 value, costing, 50–1 VAT, reduced, 156 Venezuela, oil prices, 97 Vietnamese War, 86, 91–2 vital spaces, 192, 195, 196 Volcker, Paul: 2009 address to Wall Street, 122; demand for dollars, 102; and gold convertibility, 94; interest rate rises, 99; replaced by Greenspan, 10; warning of the Crash of 2008, 144–5; on the world economy, 22, 100–1, 139 Volcker Rule, 180–1 Wachowski, Larry and Andy, 50 wage share, 34–5 wages: British workers, 137; Japanese workers, 185; productivity, 104; prophecy paradox, 48; US workers, 124, 161 Wal-Mart: The High Cost of Low Price (documentary, Greenwald), 125–6 Wall Street: Anglo-Celtic model, 12; Crash of 2008, 11–12, 152; current importance, 251; Geithner–Summers Plan, 178; global profits, 23; misplaced confidence in, 41; private money, 136; profiting from sub-prime mortgages, 131; takeovers and mergers, 115–17, 115, 118–19; toxic theory, 15 Wallace, Harry, 72–3 Walmart, 115, 123–7, 126; current importance, 251 War of the Currents, 39 Washington Mutual, 153 weapons of mass destruction, 27 West Germany: labour costs, 105; Plaza Accord, 188 Westinghouse, George, 39 White, Harry Dexter, 59, 70, 109 Wikileaks, 212 wool, as a global commodity, 28 working class: in Britain, 136; development of, 28 working conditions, at Walmart, 124–5 World Bank, 253; origins, 59; recession prediction, 149; and South East Asia, 192 World Trade Organization, 78, 215 written word, 27 yen, value against dollar, 96, 188, 193–4 Yom Kippur War, 96 zombie banks, 190–1

The Economics of Belonging: A Radical Plan to Win Back the Left Behind and Achieve Prosperity for All
by Martin Sandbu
Published 15 Jun 2020

Overindebted companies spend their revenues servicing their obligations rather than investing in expansion or productivity. Overstretched banks reduce their balance sheets to lower their bankruptcy risk. And overindebted governments feel unable to engage in aggressive deficit spending. In all cases, a surfeit of debt slows down the impulses of growth, which makes reducing debt all the harder. This is the “debt deflation” dynamic first identified in the 1930s and then reintroduced by observers of the Japanese economy after its financial crash in the early 1990s.13 An economy of belonging needs to avoid this trap if it can, and find a way out if it cannot. The solution is twofold. First, steer the economy away from funding its spending with debt in favour of other forms of finance such as equity.

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Luigi Zingales, “Does Finance Benefit Society?,” Journal of Finance 70, no. 4 (2015): 1328, https://faculty.chicagobooth.edu/luigi.zingales/papers/research/Finance.pdf. 12. Raghuram Rajan, Fault Lines: How Hidden Fractures Still Threaten the World Economy, Princeton, NJ: Princeton University Press, 2010. 13. Irving Fisher, “The Debt-Deflation Theory of Great Depressions,” Econometrica 1, no. 4 (1933): 337–57; Richard Koo, “Balance Sheet Recession Is the Reason for ‘Secular Stagnation,’ ” VoxEU, 11 August 2014, https://voxeu.org/article/balance-sheet-recession-reason-secular-stagnation. 14. See Robert Shiller, Finance and the Good Society, Princeton, NJ: Princeton University Press, 2012, for more on equity-like financial products to make people’s lives less risky. 15.

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See also United Kingdom Bulgaria, 219–20 business extension services, 205 Canada, 185, 223 capital: financial, 200–201; human, 199–200; physical, 200; taxation of, 170, 175–83 capital regions, 189, 191–92 carbon tax, 183–87 carbon taxes, 224 car washes, 96–98, 110 Case, Anne, 194 central bank policies, 63, 66–67, 89, 106, 133–34, 138–39, 143–44, 146, 163–66 Centre for Cities, 206–7 centrist politics: liberal order failed by, 229–33; programme of economics of belonging for, 233–39 China: as alternative to Western social order, 6; economic policies of, 6, 241n1; and globalisation, 72–73, 75; income growth in, 20, 21; manufacturing in, 25, 75; as shock to social market economy, 9, 77–78, 81, 249n8 cities: economic growth in, 29–31; income inequalities involving, 190; knowledge workers in, 29–30; role of, in new economies, 29–31; wealth concentration in, 153–54 climate change, 183–84, 223, 237 Clinton, Bill, 117 Clinton, Hillary, 33, 45 coal mining, 126 Cold War, 6 collective bargaining, 52, 54, 56–58, 61, 101, 103, 110, 121–23 communism, collapse of, 211, 231 community banks, 206, 268n25 comparative advantage, 74 competition, market, 5, 30, 112–13, 127–30 Contract with America, 40 corporate taxes, 178–83, 187, 218–19, 264n18 credit cycle, 160–62 credit financing, 155–60 cross-border supply chains, 74–75 cultural values: conflicts of, 15–16; economic factors vs., as driver of voter behaviour, 15–16, 37–49, 230–31; economic grievance expressed in, 48; economic inequality as influence on, 31; nationalism and, 14–15, 38; political significance of, 15–16, 37, 41–42, 47–49; populism and, 15, 38, 42–43; populist vs. elite, 14–15 deaths of despair, 36, 194 Deaton, Angus, 194 debt deflation, 156 debt financing, 155–60 debt restructuring, 159–60, 166 deindustrialisation, 29, 56–62 DeLong, Bradford, 145 demand management, 106, 132–33, 138–44, 146–47, 151, 216–17 Denmark: economic change as trigger for populism in, 42; education policy in, 108; egalitarianism and prosperity in, 99; employment in, 110; job mobility in, 107–8; job training programmes in, 108 digital revolution, market abuse facilitated by, 30, 113, 128–30 Dustmann, Christian, 47 eastern Europe, 191–92 Eatwell, Roger, 38 eBay, 69 economic change, 17–36; causes of, 18, 21; community-level effects of, 9–10, 29–31, 45–47, 49; cultural values elicited by, 48; cultural values vs., as driver of voter behaviour, 15–16, 37–49; gender as factor in, 33–34; government response to, 9, 11–13, 21, 51, 54–70; grievances about, 8, 18, 35–36, 48; harms suffered by the vulnerable in, 9, 35, 61–62, 68, 135, 137–38, 141; illiberalism linked to, 8, 15, 36, 38–49, 39; manufacturing sector and, 22–26; nationalism linked to, 8; populism linked to, 21, 26, 39–44; role of cognitive skills in, 27–29; structural change and, 55–62; usurpation story about, 18, 21–22, 26; Western income stagnation and, 19–21 economic insecurity: community-level effects of, 9–10; illiberal attitudes mobilised by, 48; income inequality linked to, 58–60; policy decisions exacerbating, 61; precarious employment and, 58–61; social contract undermined by, 58–62; in Sweden, 44.

EuroTragedy: A Drama in Nine Acts
by Ashoka Mody
Published 7 May 2018

The risk now was that a debt-​deflation cycle—​a continued decline in inflation, feeding into higher debt burdens—​could take hold in large parts of the euro area. On November 7, 2013, Draghi finally acknowledged that Property price deflation in Italy (Price Index in 2010=100) 125 Italian government debt rises faster than expected (Debt-to-GDP ratio, percent) 135 Germany 115 130 105 125 95 April 2014 April 2013 120 April 2012 Italy 85 115 75 2007 110 September 2011 09 11 13 15 2010 11 12 13 14 15 16 17 Figure 7.9. Italy begins to slide into a debt-​deflation cycle. Note: Dashed lines refer to projections at the time.

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ECB’s July 7 decision creates panicked search for US dollars. 301 7.7. More ECB liquidity spurs Spanish and Italian banks to load up on government bonds. 305 7.8. Euro-area inflation rate continues dropping while US inflation rate stabilizes in mid-​2013. 316 7.9. Italy begins to slide into a debt-​deflation cycle. 318 8.1. The great divergence in euro-area incomes and employment. 340 x   l i s t of figures 8.2. Italy seen in the mirror of Japan’s lost decade. 345 8.3. Young, college-educated Italians leave Italy in growing numbers. 347 8.4. The euro area’s inflation divergence. 355 8.5. US and Japanese QE cause the euro to strengthen. 358 8.6.

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It had a hopeful prognosis for the US economy.173 And it aptly noted that euro-​area recovery would be sluggish, pointing to rising unemployment and the need for further financial-​sector repair.174 But the WEO missed the breaking news. Although it was published on October 15, it did not recognize that the euro area’s rolling crisis had crossed into Greece. And it certainly did not foresee that a debt-​deflation dynamic, propelled by the ideology of monetary and fiscal austerity, would carry the crisis to Italy. after the bust, the denial 231 Chapt er 6 Delays and Half Measures Greece and Ireland, 2010 T he date was October 1, 2009. George Papandreou was campaigning to be the next Greek prime minister.

When the Money Runs Out: The End of Western Affluence
by Stephen D. King
Published 17 Jun 2013

Stock markets collapsed, the technology sector was no longer able to raise funds and recession threatened. Keen to avoid a repeat of Japan's ongoing stagnation, and confident that they had the tools to do so, Western policy-makers offered massive monetary and fiscal stimulus: interest rates tumbled, budget deficits rose and the threat of debt deflation – of falling prices that would increase the real value of debt – was averted. However, all was not well. With low interest rates and gossamer-thin regulation, housing markets boomed, as did the issuance of mortgage-backed securities, which offered higher returns than government bonds and, so it seemed, more safety than jittery stock markets.

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Krugman is quick to emphasize the similarities with the 1930s but silent on the many differences. Back then, the collapse in US nominal demand – the value of national income – was far greater than the collapse in real demand – the volume of national income. In other words, the US in the 1930s was suffering from what Irving Fisher described as debt deflation. Today, the situation is entirely different. Relative to the expectations of economists whose job it is to forecast such things, there has most definitely been a shortfall in the volume of US national income. However, even allowing for the impact of the financial crisis, there has been no significant shortfall in the value of national income.

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(i) Asian crisis (i) recovery from (i), (ii), (iii) asset prices (i) asset-backed securities (i) Audit Commission (i) austerity (i), (ii), (iii), (iv), (v) and political extremism (i) Statute of Labourers (i) versus stimulus (i) wartime (i), (ii) see also Snowden's budget Australia (i), (ii), (iii), (iv) Austria (i) baby boomers (i), (ii), (iii) bailouts (i), (ii) Balls, Ed (i) Bank Negara (i) Bank of England (i), (ii), (iii) economic growth forecasts (i) interest rates (i), (ii) and Libor (i) Bank of Japan (i) banking free (i), (ii) and protectionism (i) union (eurozone) (i) banks (i), (ii) bankers' rewards (i) failure (i), (ii) liquidity buffers (i), (ii) mortgage loan-to-value ratios (i) regulatory uncertainty (i) and savers (i) see also central banks Barclays Bank plc (i), (ii) Basel III regulations (i) Bean, Charlie (i), (ii) Bear Stearns (i) Belgium (i) Ben Ali, Zine al-Abidine (i) Benedetti, Count (i) benefits (i), (ii) see also social spending Bernanke, Ben (i), (ii) Beveridge, William (i) bimetallism (i) Bismarck, Otto von (i) Black Death (i), (ii) blame culture (i), (ii), (iii), (iv), (v) Blenheim Palace (i) bonds (i), (ii), (iii), (iv), (v) borrowers (i), (ii), (iii) borrowing, government borrower of last resort (i) heavy (i) international (i) and low interest rates (i), (ii) and the New Deal (i) to offset private saving (i) relative to national income (i), (ii) rising (i) see also credit: queues Botswana (i) Brazil (i), (ii), (iii) Britain see UK (United Kingdom) British Empire (i), (ii), (iii) Bryan, William Jennings (i) budget deficits (i), (ii), (iii), (iv), (v) France (i) Germany (i) Spain (i) UK (i), (ii), (iii) US (i), (ii), (iii) Buenos Aires (i) Business Week (i) Buxton, Thomas Fowell (i) California (i) Calonne, Charles-Alexandre de (i) Canada (i), (ii) capital adequacy ratios (i) controls (i), (ii), (iii), (iv) flight and the euro (i) foreign (i), (ii) immobile (i) markets (i), (ii) and the rise of living standards (i) Carr, Jimmy (i) Case-Shiller house price index (i) Catalonia (i) Central African Republic (i) central banks and bailouts (i) expansion of remit (i) and government debt (i) and illusory wealth (i) interest rates (i) and a new monetary framework (i) nominal GDP targeting (i) and politics (i), (ii), (iii) and redistribution (i) see also quantitative easing (QE) Chicago (i) China and commodity prices (i) financial systems (i) and globalization (i) income inequality (i), (ii) living standards (i) per capita incomes (i) and regional tensions (i) renminbi currency (i) silver standard (i), (ii) trading partners (i) and the US (i), (ii) Chinese Exclusion Act (i) Chrysi Avgi (i) Churchill, Winston (i) circuit breakers (i), (ii) Coinage Act (i) Committee on National Expenditure (i) commodity prices (i), (ii), (iii) conduits (i) Connecticut (i) consumer credit (i), (ii), (iii) contingent redistribution (i) credit consumer (i), (ii), (iii) derivation of word (i) expansion (i) and the property boom (i) and protectionism (i) queues (i), (ii), (iii), (iv) Creditanstalt (i) creditors creditor nations (i), (ii) and debtors (i), (ii), (iii), (iv), (v) foreign (i), (ii), (iii) home grown (i) Japan (i) cross-subsidization, of banking services (i) currencies (i), (ii) ‘currency wars’ (i), (ii) see also eurozone; renminbi; ringgit; sterling Darling, Alistair (i) debt and asset prices (i) and central banks (i) eurozone crisis (i), (ii) excessive (i), (ii) France (i) household (i), (ii), (iii) and inflation (i) Japan (i) and national incomes (i), (ii), (iii) and quantitative easing (QE) (i) repaying (i) debt deflation (i) debtors and creditors (i), (ii), (iii), (iv), (v) eurozone (i) home grown (i) deficient demand (i), (ii) deficit expansion (i) deficit reduction (i) deficits (i), (ii), (iii), (iv), (v) France (i) Germany (i) Korea (i) pension funds (i), (ii) Spain (i) and surpluses (i), (ii) UK (i), (ii), (iii) US (i), (ii), (iii) deflation (i), (ii) democratic deficit (i), (ii) Deng Xiaoping (i), (ii) Denmark (i) the Depression (i), (ii), (iii), (iv), (v) and the UK (i), (ii) Dexia (i) Diamond, Bob (i) Dickens, Charles (i) disaster-avoidance (i) District of Columbia (i) dollar standard (i) dotcom bubble (i) Draghi, Mario (i) economics profession (i), (ii), (iii) Edelman Trust Barometer (i) education (i) financial (i) literacy (i) training (i) Edward III (i) Egana, Amaia (i) emerging nations (i), (ii) employment (i) see also labour; unemployment enfranchisement (i), (ii) the Enlightenment (i), (ii), (iii) entitlement culture (i), (ii), (iii), (iv), (v), (vi) absent from Asia (i), (ii) need to reduce (i), (ii) equities (i), (ii) ethics (i) Ethiopia (i) European Central Bank (ECB) (i), (ii), (iii), (iv), (v) eurozone banking union (i) crisis (i), (ii) and the European Central Bank (i) northern creditors and southern debtors (i), (ii), (iii), (iv), (v), (vi) and trust (i) and the UK (i), (ii) variations in borrowing costs (i) exchange rates (i), (ii), (iii), (iv) executive pay (i) exports (i), (ii) extremism, political (i) Fannie Mae (i) Federal Reserve (i), (ii), (iii), (iv) and the Great Depression (i), (ii) Ferguson, Niall (i) Ferguson, Roger (i) feudalism (i) financial services (i) innovations (i), (ii), (iii) Financial Services Authority (FSA) (i) Finland (i) First World War (i), (ii) ‘fiscal club’ concept (i) fiscal policy (i), (ii), (iii), (iv), (v) fiscal trap (i) fiscal unions (i) Fisher, Irving (i), (ii) football (i) forecasting (i), (ii), (iii), (iv), (v) Fortis (i) France age-related expenditure (i) ancien régime and the Revolution (i) and Austria (i) benefits (i) budget deficit (i) exports (i) Latin monetary union (i) per capita incomes (i), (ii) and political extremism (i) and public spending (i) Franco-Prussian War (i) Frank, Barney (i) fraudulent acts (i) Freame, John (i) Freddie Mac (i) free banking (i), (ii) French Revolution, and the ancien régime (i) Freud, Sigmund (i) Friedman, Milton (i), (ii), (iii), (iv), (v) Fuld, Dick (i) GDP forecasts (i), (ii) targeting (i) General Strike (i) generational divide (i), (ii), (iii) see also ageing populations Germany ageing population (i), (ii), (iii) benefits (i) budget deficit (i) and the eurozone crisis (i), (ii), (iii), (iv), (v) exports (i) Franco-Prussian War reparations (i), (ii) government borrowing (i), (ii) interest rates (i) late 19th-century economy (i), (ii) living standards (i) national income (i) per capita incomes (i), (ii) and the Protestant work ethic (i) and public spending (i) surplus (i) Treaty of Versailles (i) unification (i) Weimar Republic (i), (ii) GfK/NOP Inflation Attitudes Survey (i) globalization (i), (ii), (iii), (iv), (v) Gold Standard (i) and Germany (i) and the UK (i), (ii), (iii), (iv), (v) and the US (i), (ii), (iii) gold standards (i), (ii) Golden Dawn Party (i) Goodwin, Fred (i) Gordon, Robert J.

The Corruption of Capitalism: Why Rentiers Thrive and Work Does Not Pay
by Guy Standing
Published 13 Jul 2016

In 1928, across seventeen industrialised countries, only 30 per cent of bank lending was for property; by 2007, the proportion was nearly 60 per cent.10 When central banks cut interest rates to practically zero or indulge in quantitative easing, more money flows into the property market, raising house prices, enriching landlords and encouraging speculative property buying. Eventually, this precipitates an asset crash and a ‘debt-deflation’ recession in which firms and households, faced with dwindling asset values, slash spending to try to meet increasingly onerous debt repayments. There is a historical parallel. Early in the twentieth century, financiers in industrialised countries sowed the seeds for debt deflation by channelling funds into imperialistic ventures, drawn by promises of spectacular riches in exotic places. This led to what the British economist John Hobson depicted as systemic underconsumption at home.

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In the USA, critics such as Thorstein Veblen saw finance distorting production and, in Germany as early as 1910, Rudolf Hilferding warned against financial capitalism for similar reasons. Finance fuelled the imperialistic rivalries that contributed to the First World War. Once an exhausted peace had been restored, Europe was afflicted by debt deflation, partly due to US demands for payment for armaments it had supplied to the UK and France. They in turn pushed impoverished Germany to pay heavy war reparations, plunging it into economic depression and paving the way for Nazism. Meanwhile, the elite in the USA and Europe continued their lavish lifestyles, mostly funded from rentier income, until the bubble burst in the Great Crash of 1929.

What's Next?: Unconventional Wisdom on the Future of the World Economy
by David Hale and Lyric Hughes Hale
Published 23 May 2011

The Western World’s Two Distinct Problems The first problem the OECD faces is that from 2000 to 2010 the private sector created a lot of assets (real estate in the United States, Spain, the United Kingdom, Ireland, etc.) against which a considerable amount of debt has been collateralized by commercial banks. As the prices of these assets fall, a Fisher-like “debt deflation” looms. The second problem is that, for structural reasons, a growing number of OECD countries are confronting a very challenging budgetary situation. The credit crunch, bank bailouts, and recession only account for 9 percent of the increase in long-term public debt burdens in major advanced economies.

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CUSTOMS UNION: A free trade area that also establishes a common tariff and other trade policies with nonmember countries. DAVOS: Annual meeting held by the World Economic Forum that gathers politicians, business leaders, economists, and other luminaries to discuss key issues facing the global economy. DEBT DEFLATION: Economic theory originally articulated by Irving Fisher that holds that recessions and depressions are due to the overall level of debt shrinking. DEBT SPIRAL: The phenomenon of a country’s debt load growing rapidly, which leads to even more debt in the form of increased interest payments. The increased interest payments lead to bigger deficits, which in turn lead to an increased national debt load.

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See credit default swaps (CDSs) Central Africa, 126 central banks, Asia, 82–83; asset buying by, 81; demand for gold by, 169–170, 174–175; money supply and, 246–248; selling public debt to, 259 Chile, 8, 33, 48, 49, 51 China, xv, xx; Australian exports to, 145–146; climate change and, xxvi, 225; consumption in, 89–90; currency intervention by, 10; economic growth in, 10, 52; economy of, xxiii, 24; equity markets, 83–84, 85; excess of thrift in, 88–89; as financial capital, 245–246; financial sector in, xxvii; fiscal deficit, 257; gold market in, 170–171; gold reserves, xxv, 168–169, 170, 174; household incomes in, 89; influence of, in Africa, 122–123; labor costs in, 86–87, 89–90; monetary policy, 10; savings rate in, 245–246; structural shift in, 84–85 Citigroup, 272 Clean Development Mechanism (CDM), 225 climate change, adaptation to, 227–229; Canada and, xviii, 27–28; future outcomes for, 224–225; international agreements on, 220–223; oil industry and, xxv, 189–191; public policy and, xxvi–xxvii, 219–230; South Africa and, xxii coal, 125 Coates, John, 290 cognitive abilities, 293–294 cognitive biases, 287, 288–289 collateralized debt obligations (CDOs), 275 Colombia, 33, 48, 49 commodity prices, xv, xxii, 50, 52–54, 117, 195 Common Market for Eastern and Southern Africa (COMESA), 122 compensation plans, 277 composite currencies, 161–163 Conference of the Parties to the Convention (COP), 222 confirmatory evidence, 288 conflicts, in Sub-Saharan Africa, 123–124 Congdon, Tim, xxvii Constitutionalist Revolution (1906), 206 consumer debt, 18–19 Consumer Protection Financial Bureau, 267, 269 consumer spending, 8, 18 consumption-based taxes, 261–263 Copenhagen Accord, 222, 225 Cordero, Ernesto, 45 corporate compliance, xxviii–xxix, 271–282 corporate governance, 267, 268 corporate profits, 8 corporate sector: Canada, 20; US, xvi, 4, 8 corporate taxes, 260 cortisol, 290 Costa Rica, 48 Côte D’Ivoire, 127 credit default swaps (CDSs), 275 creditor status, 156 Creel, Santiago, 37, 45 crime, in Mexico, 43 culture of ethics, 276–280 currencies: African, 122; composite, 161–163; domestic, 155; international, 155–156; synthetic, 161–163. See also dollar; reserve currency currency intervention, 9–10 currency speculation, 250–255 Daragahi, Borzou, 209 Davos consensus, 285–286 debt deflation, 80–81 Decalogue, 39–44 Deepwater Horizon oil spill, 41, 185–186 deficit reduction, xvii, 5, 10–11 deflation, xxi, 96–97, 100, 173, 247 Democratic Party, 6, 12–13 Democratic Party of Japan (DPJ), xxi, 102–104, 106, 109–111, 113–114 Democratic Republic of the Congo (DRC), xxii, 126 Demographics: in Canada, 25–26; fiscal imbalances and, 258; in Latin America, xx, 51 Denmark, 113 derivatives, 267, 268 developing countries, climate change and, 225, 226 Dodd, Christopher, 264 Dodd-Frank Wall Street Reform and Consumer Protection Act, xxviii, 264–270 Dollar: Australian, 146; Canadian, 23; devaluation of US, xvii, 7, 25; US, as reserve currency, xxiv, 153–165; weakening of US, and commodity prices, 53 domestic currency, 155 DPJ.

Seven Crashes: The Economic Crises That Shaped Globalization
by Harold James
Published 15 Jan 2023

The reduced wealth as a consequence of the stock market panic reduced the collateral on which individuals and corporations could borrow, and thus pushed the process of credit disintermediation that characterized the Great Depression. Banks lent less, and as they cut back their loan books, they forced borrowers to liquidate stock and other assets, and drove prices down further. This is the process identified at the time by Irving Fisher as debt-deflation, one that was later built into a model of transmission mechanism as the credit channel by Ben Bernanke. International Rescues? Could there have been a coordinated international effort to prevent, halt, or reverse the collapse of demand? That would have required restarting the credit engine that was sputtering and dying in a world in which no one was any longer prepared to take on risk.

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The store consequently appeared less attractive and lost customers. The possibility of bankruptcy, weighed up by the bankers, could thus become a reality. This was a logic that had been influentially analyzed by Irving Fisher, a major figure in the development of the quantity theory of money, who termed the process debt-deflation.99 Bernanke built the insight into a formal model. In the 1990s it was hard to find examples of the insidious damage caused by deflation that might stand alongside the trauma of Depression-era America—except Japan after the bursting of the bubble in 1991. Japan looked like a case study of an economy weighed down by the combination of debt and demographics.

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Ben Bernanke and Mark Gertler, “Agency Costs, Net Worth, and Business Fluctuations,” American Economic Review 79 (March 1989): 14 –31; Ben Bernanke and Mark Gertler, “Financial Fragility and Economic Performance,” Quarterly Journal of Economics 105 (February 1990): 87–114. 99. Irving Fisher, “Debt Deflation,” Economica 1, no.4 (1933): 337–357. 100. Ben Bernanke, “Japanese Monetary Policy: A Case of Self-Induced Paralysis,” in Japan’s Financial Crisis and Its Parallels to U.S. Experience, ed. Ryōichi Mikitani and Adam Simon Posen (Washington, D.C.: Institute for International Economics, 2000), 151. 101.

Stolen: How to Save the World From Financialisation
by Grace Blakeley
Published 9 Sep 2019

A Preliminary Analysis’, Economy and Society, 29, no. 1: 111-145; Stockhammer (2008); Stockhammer, E. (2004) “Financialisation and the Slowdown of Accumulation”, Cambridge Journal of Economics, vol. 28; Palley, T. (2007), ‘Financialization: What It Is and Why It Matters’, Working Paper No. 525, New York: The Levy Economics Institute at Bard College; Duménil G. and Lévy D. (2004) Capital Resurgent: roots of the neoliberal revolution, Cambridge: Harvard University Press; Duménil G. and Lévy D. (2005) ‘Costs and benefits of neoliberalism: a class analysis’ in Epstein (2005); Duménil G and Lévy, D (2011) The Crisis of Neoliberalism, Cambridge: Harvard University Press; Hudson, M. (2012) The Bubble and Beyond: Fictitious Capital, Debt Deflation and the Global Crisis, London: Islet 15 This account draws on: Hudson (2012); Hudson, M. (2015) Killing the Host: How Financial Parasites and Debt Destroyed the Global Economy, London: Isley; Mazzucato, M. (2018) The Value of Everything: Making and Taking in the Global Economy, London: Allen Lane; Pettifor, A. (2017) The Production of Money, London: Verso; Keen, S. (2017) Can We Avoid Another Financial Crisis?

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The Elgar Companion to Political Economy, London: Edward Elgar Publishing; Shiller, R. (2000) Irrational Exuberance, USA: Princeton University Press; Wray (2011; 2015); Jayadev, A. (2016) “Minsky’s Many Moments”, Institute for New Economic Thinking, 5 August. https://www.ineteconomics.org/perspectives/blog/minskys-many-moments; Muñoz, J. (2011) “Orthodox versus Heterodox (Minskyan) Perspectives of Financial Crises: Explosion in the 1990s versus Implosion in the 2000s”, Levy Economics Institute Working Paper 695 http://www.levyinstitute.org/pubs/wp_695.pdf; Whalen, C. (2017) “Understanding Financialization: Standing on the Shoulders of Minsky”, Levy Economics Institute Working Paper 892. http://www.levyinstitute.org/pubs/wp_892.pdf; Knight, F. (1921) Risk, Uncertainty and Profit; Fisher, I. (1933) The Debt-Deflation Theory of Great Depressions; Wray, L.R. and Tymoigne, É. (2008) “Macroeconomics Meets Hyman P. Minsky: The Financial Theory of Investment”, Levy Economics Institute Working Paper 543. http://www.levyinstitute.org/publications/macroeconomics-meets-hyman-p-minsky; Bhattacharya, S., Goodhart, C., Tsomocos, D.P. and Vardoulakis, A.P. (2014) “A Reconsideration of Minsky’s Financial Instability Hypothesis”, Journal of Money, Credit and Banking, vol. 45 http://eprints.lse.ac.uk/64218/ 5 OECD (2011) “International Capital Flows: Structural Reforms and Experience with the OECD Code of Liberalisation of Capital Movements”, Report from the OECD to the G20 Sub-Group on Capital Flow Management. https://www.oecd.org/economy/48972216.pdf 6 Lane, P. (2012) “Financial Globalisation and the Crisis”, BIS Working Paper 397. https://ssrn.com/abstract=2248065 7 This account draws on: Blakeley (2018a); Lane (2012); Favilukis, J., Kohn, D., Ludvigson, S.C. and Van Nieuwerburgh, S. (2012), “International Capital Flows and House Prices: Theory and Evidence”, in Housing and the Financial Crisis, Chicago: University of Chicago Press. https://static1.squarespace.com/static/54397369e4b0446f66937a73/t/56590b88e4b0702d37f626e1/1448676232727/nbh.pdf; Ferrero, A. (2012) “House Price Booms, Current Account Deficits, and Low Interest Rates”, Staff Report Number 541, Federal Reserve Bank of New York. https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr541.pdf; Felix, D. (2005) “Why International Capital Mobility Should Be Curbed and How It Could Be Done”, in Epstein (2005); Geet, P. (2015) “Housing Demand, Savings Gluts and Current Account Dynamics”, Globalization and Monetary Policy Institute Working Paper 221 https://www.dallasfed.org/~/media/documents/institute/wpapers/2015/0221.pdf; Guschanski, A. and Stockhammer, E. (2017) “Are Current Accounts Driven by Competitiveness or Asset Prices?

Why We Can't Afford the Rich
by Andrew Sayer
Published 6 Nov 2014

But the higher the rate of interest, the more these gains are siphoned off by lenders, reducing the benefits to the economy.46 ‘Consumptive loans’, including mortgages and credit cards, allow consumers to bring forward purchases, and so may boost growth for a while, though in the long run their consumption is reduced by the burden of paying off the interest. Whatever the benefits of credit, interest charges add deadweight costs, diminishing those benefits. This depression of consumption and investment by the payment of interest is sometimes called ‘debt deflation’. Lenders generally demand higher rates of interest from those who are more at risk of defaulting. In the US, the poor pay 50–60% more in interest on auto loans than the better-off. From the point of view of the lender, this may be rationalised as a form of insurance against risk, but it has the ironic effect of making those in a weaker position for getting credit even more likely to default.

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Although neoliberal politicians now like to blame the debt mountain on profligate consumer and government borrowing, so as to provide an excuse for cutting public spending, the financial sector itself was the main debt growth sector, as a result of loans between different financial organisations.47 You might think that creating ever greater volumes of credit money would cause inflation. It did, only not in the prices of consumer goods but in asset values, especially property values – the kind of inflation neoliberals love. It increases the wealth of asset holders relative to the asset-poor, who experience wage stagnation and debt deflation.48 As long as the bubbles are growing, banks lend out more and get still more interest. In John Merryman’s words: What the people in charge came to understand is that lots of money can be created, without causing general inflation, if it can be largely kept out of the regular economy. While a lot is loaned back into the economy, much is cycled within the banking system.

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One commentator described the methods used to maximise management’s gains as ‘legal embezzlement’ (John Plender, cited in Tabb, 2012, p 44). 40 Engelen, E., Ertürk, I., Froud, J., Johal, S., Leaver, A., Moran, M., Nilsson, A. and Williams, K. (2011) After the great complacence: Financial crisis and the politics of reform, Oxford: Oxford University Press, p 49. 41 Piketty, T. (2014), p 458. 42 Froud, J., Johal, S., Haslam, C. and Williams, K. (2001) ‘Accumulation under conditions of inequality’, Review of International Political Economy, 8(1), pp 66–95. 43 Shutt (2009), pp 128–9. 44 See Chapter Eighteen. 45 Lysandrou, P. (2011) ‘Global inequality as one of the root causes of the financial crisis: a suggested explanation’, Economy and Society, 40(3), pp 323–44. 46 At the time of writing, European Union citizens’ bank deposits were protected up to €100,000 (£85,000) in any one banking group. 47 Turner, A. (2009) The Turner Review: A regulatory response to the global banking crisis, London: Financial Services Authority, p 18. 48 For a definition of debt deflation, see Chapter Four. On how Wall Street engineered asset inflation at the end of the 20th century and enhanced the unearned income of the top 1% in the US who were bondholders, see Canterbery, E.R. (2000) Wall Street capitalism; The theory of the bondholding class, Singapore: World Scientific Publishing Company. 49 Merryman, J. (2012) Occupying money, 17 May, http://source.yeeyan.org/view/430335_f43/Occupying%20Money.%20-%20welcome%20to%20exterminating%20angel%20press.

MegaThreats: Ten Dangerous Trends That Imperil Our Future, and How to Survive Them
by Nouriel Roubini
Published 17 Oct 2022

However, inflation is not a panacea for towering debt. Steeper inflation might erase debt faster, but at the cost of imposing unsustainable interest rates on new borrowers and borrowers who must roll over their debt. Deflation works in the opposite direction. Every dollar borrowed has higher real value than the same dollar when it is repaid in the future. A phenomenon called debt deflation wallops borrowers. The real value of debt grows more burdensome. Suppose MegaCorp takes out a loan at 3 percent and deflation is 2 percent. Forget the windfall that inflation bestows. The real cost of borrowing adds the rate of deflation to the rate of interest.

The Road to Ruin: The Global Elites' Secret Plan for the Next Financial Crisis
by James Rickards
Published 15 Nov 2016

The next crisis will come before the current easing cycle has been reversed. Central banks will be defenseless except through the use of massive new quantitative easing programs. This new money creation binge will test the outer limits of confidence in central bank money. In addition to this list of catalysts from gold, debt, deflation, and default, there are exogenous threats that emerge in geopolitical space and spill over quickly into financial panics. These threats include conventional wars, cyberwars, assassinations, prominent suicides, power grid outages, and terror attacks. Finally there are natural disasters such as earthquakes, volcanic eruptions, tsunamis, category five hurricanes, and deadly epidemics.

…

The endgame has emerged. Debt is compounding faster than growth. Monetary policy is impotent except to blow bubbles and buy time. Structural change is impeded by political dysfunction. Substitution of sovereign debt for private debt has run its course; now the sovereigns themselves are stretched. Debt, deflation, demographics, and depression are demolishing elite dreams of free trade, free markets, and free capital flows. Elites hope for the turn of a friendly card, but the deck is stacked by decades of denial about income inequality and lost jobs. Some elites are abandoning ship, taking their winnings and buying condos, private jets, even islands, storing bullion and fine art in private vaults.

Austerity: The History of a Dangerous Idea
by Mark Blyth
Published 24 Apr 2013

It’s hard to see this as either welfare improving or politically sustainable in any meaningful sense. Third, you don’t have to be a Keynesian to acknowledge that economies do not necessarily self-heal. One of America’s Great Depression–era monetary economists, Irving Fisher, analyzed how, much to his dismay, depressions do not in fact “right themselves” owing to a phenomenon called debt deflation.55 Simply put, as the economy deflates, debts increase as incomes shrink, making it harder to pay off debt the more the economy craters. This, in turn, causes consumption to shrink, which in the aggregate pulls the economy down further and makes the debt to be paid back all the greater. Fourth, just as it does not follow that governments should always intervene to stave off market adjustments, as the “Greenspan put” and Ireland’s bank rescue showed only too well, to argue that there should never be intervention presumes knowledge of the system—it will return to full employment if left alone—that Austrians themselves say is impossible to attain.

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John Maynard Keynes, The General Theory of Employmemt, Interest and Money (New York: Harcourt Brace, 1963), 3. 54. United States Bureau of Labor Statistics, News Release, “Union Members Summary,” January 27, 2012, http://www.bls.gov/news.release/union2.nr0.htm. 55. Irving Fisher, “The Debt Deflation Theory of Great Depressions,” Econometrica, 1, 4 (1933): 337–357. 56. John Quiggin “Austrian Economics: A Response to Boettke” posted on Johnquiggin.com, March 18, 2009, http://johnquiggin.com/2009/03/18/austrian-economics-a-response-to-boettke/. 57. Good luck with that. Somalia is a shining example of such zero-state political economies. 58.

Boom and Bust: A Global History of Financial Bubbles
by William Quinn and John D. Turner
Published 5 Aug 2020

Rubinstein, ‘Cycling’, pp. 48–50; Guardian, ‘Freewheeling to equality’, 18 June 2015; Independent, ‘How the bicycle set women free’, 9 November 2017. 77. Vivanco, Reconsidering the Bicycle, p. 33. CHAPTER 7: THE ROARING TWENTIES AND THE WALL STREET CRASH 1. Fitzgerald, The Great Gatsby, p. 3. 2. Fisher, ‘The debt-deflation theory’, 341. 3. Jordá, Schularick and Taylor, ‘Macrofinancial history’. 4. Kang and Rockoff, ‘Capitalizing patriotism’, 46–52. 5. Hilt and Rahn, ‘Turning citizens into investors’, 93. 6. Kang and Rockoff, ‘Capitalizing patriotism’, 57. 7. Hilt and Rahn, ‘Turning citizens into investors’, 94. 8.

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Fishback, P., Haines, M. R. and Kantor, S. ‘Births, deaths, and New Deal relief during the Great Depression’, Review of Economics and Statistics, 89, 1–14, 2007. Fisher, C. and Kent, C. ‘Two depressions, one banking collapse’, Reserve Bank of Australia Research Discussion Paper, No. 1999–06, 1999. Fisher, I. ‘The debt-deflation theory of great depressions’, Econometrica, 1, 337–57, 1933. Fitzgerald, F. S. The Great Gatsby, New York: Scribner, 1925. Flandreau, M., Gaillard, N. and Packer, F. ‘Ratings performance, regulation and the great depression: lessons from foreign government securities’, CEPR Discussion Paper, No.

How Will Capitalism End?
by Wolfgang Streeck
Published 8 Nov 2016

While in the 1970s inflation was public enemy number one, now desperate efforts are being made throughout the OECD world to raise it to at least 2 per cent, hitherto without success. By comparison with the 1970s, when it was the coincidence of inflation and unemployment that left economists clueless, now it is very cheap money coexisting with deflationary pressures, raising the spectre of ‘debt deflation’ and of a collapse of a pyramid of accumulated debt by far exceeding in size that of 2008. How much of a mystery the present phase of the long crisis of contemporary capitalism presents to its would-be management24 is nowhere more visible than in the practice of ‘quantitative easing’, adopted, under different names, by the leading central banks of the capitalist world.

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This regime, fashioned after the German model, soon proved unable to enforce fiscal discipline even on Germany. It also failed to prevent the post-2008 Eurocrisis, when public and private debtors in a number of EMU member countries suddenly appeared over-indebted and lost the confidence of their creditors, especially as their national economies became locked into stagnation, with a possibility of debt deflation. As a consequence, risk premiums on public debt in several EMU member countries began to rise; in countries like Italy, Greece, Spain and Ireland they reached an unmanageable level. As indicated, there are no general economic limits to public debt, which requires strictly individualized, case-by-case risk assessment on the part of creditors.

Sacred Economics: Money, Gift, and Society in the Age of Transition
by Charles Eisenstein
Published 11 Jul 2011

Soon the outstanding balance is so high that they have to borrow money even to pay interest, which means that money is no longer flowing, and can no longer flow, from debtor to creditor. This is the final stage, usually short, though prolonged in our day by Wall Street’s financial “wizardry.” The loans and any derivatives built on them begin to lose their value, and debt deflation ensues. Essentially, the proximate financial crisis and the deeper growth crisis of civilization are connected in two ways. Interest-based debt-money compels economic growth, and a debt crisis is a symptom that shows up whenever growth slows. The present crisis is the final stage of what began in the 1930s.

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If it did, then the story under which the Middle East ships us its oil, Japan its electronics, India its textiles, and China its plastic would come to an end. Unfortunately, or rather fortunately, that story cannot be saved forever. The fundamental reason is that it depends on the maintenance of exponentially growing debt in a finite world. When money evaporates as it is doing in the current cycle of debt deflation, little changes right away in the physical world. Stacks of currency do not go up in flames; factories do not blow up; engines do not grind to a halt; oil wells do not run dry; people’s economic skills do not disappear. All of the materials and skills that are exchanged in human economy, upon which we rely for food, shelter, transportation, entertainment, and so on, still exist as before.

The Production of Money: How to Break the Power of Banks
by Ann Pettifor
Published 27 Mar 2017

Recovery, especially in Europe, was worse than from the Great Depression of the 1930s, when it took far less time for countries to return to pre-crisis levels of employment, incomes and activity. As I write, the ‘austerity’ mood has changed. Global institutions are panic-struck by the volatility of the financial system, by the threats of debt-deflation, a slowing global economy, and by the rise of political populism. In response, by way of extraordinary U-turns, they have radically altered their advice on fiscal consolidation. The IMF, in a May 2016 note, questioned whether neoliberalism had been oversold. The OECD warned policy-makers several times in 2016 to ‘act now!

Investment: A History
by Norton Reamer and Jesse Downing
Published 19 Feb 2016

Born in 1867 in New York, Irving Fisher was a prolific American economist who made contributions to indexing theory as it pertains to measuring quantities like inflation (James Tobin called him the “greatest expert of all time” in this topic), produced work distinguishing between real interest rates and nominal interest rates, and improved the quantity theory of money.4 He also proposed debt deflation as the mechanism that wreaked havoc on the economy in the Great Depression. While John Maynard Keynes’s economic formulations became largely favored over Fisher’s in their own time, interest in debt deflation reemerged in the wake of the global financial crisis of 2007–2009. Given these achievements, it is not entirely surprising that Milton Friedman would call Fisher the “greatest economist the United States has ever produced.”5 Fisher’s primary contribution to investment theory was the development of a metric to assess which income stream represents the optimal investment: “rate of return over cost,” a concept related to what is today referred to as net present value (NPV).

Money: 5,000 Years of Debt and Power
by Michel Aglietta
Published 23 Oct 2018

In mid-1919, Keynes demonstrated the dangers that the Treaty posed to the restoration of an international balance, showing that it was impossible for Germany to honour the commitments that had been imposed upon it. See Keynes, The Economic Consequences of the Peace, New York: Harcourt Brace, 1920. 7 Barry Eichengreen and Kris Mitchener, ‘The great depression as a credit boom gone wrong’, BIS Working Paper, no. 137, 2003. 8 Irving Fisher, ‘The Debt-Deflation Theory of Great Depressions’, Econometrica, vol. 1, no. 4, 1933, pp. 337–57. 9 Charles P. Kindleberger, The World in Depression 1929–1939, Berkeley: University of California Press, 1973. 10 For a presentation and an analysis of the tripartite agreement, see Ian M. Drummond, ‘London, Washington and the Management of the Franc, 1936–39’, Princeton Studies in International Finance, no. 45, 1979. 11 On Keynes and White’s rival expectations and conceptions, and the difficult reconciliation that led to the Bretton Woods accords, see Michel Aglietta and Sandra Moatti, Le FMI.

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Fields, David and Matías Vernengo (2013), ‘Hegemonic currencies during the crisis: The dollar versus the euro in a cartelist perspective’, Review of International Political Economy, vol. 20, no. 4, pp. 740–59. Financial Stability Board (2015), ‘Assessment Methodologies for Identifying Non-Bank, Non-Insurer Global Systematically Important Financial Institutions’. fsb.org Finley, Moses I. (1975), Économie antique, Paris: Éditions de Minuit. Fisher, Irving (1933), ‘The Debt-Deflation Theory of Great Depressions’, Econometrica, vol. 1, no. 4, pp. 337–57. Foulis, Patrick (2015), ‘The sticky superpower’, Special report on the world economy, The Economist, 3 October. Frankel, Herbert (1977), Money. Two Philosophies: The Conflict of Trust and Authority, Oxford: Blackwell. Garcia, Gillian and Elizabeth Plantz (1988), The Federal Reserve: Lender of Last Resort, Cambridge, MA: Ballinger Press.

The Asian Financial Crisis 1995–98: Birth of the Age of Debt
by Russell Napier
Published 19 Jul 2021

As banks are the key creators of both credit and money, they are, usually by law, barred from extending credit when they know they have no capital. Should banks shrink their balance sheets to fit with their new lower capital base, both credit and money are destroyed and a country has entered what Irving Fisher once described as a debt deflation. There was no sign of new capital for the remaining Thai banks and finance companies, and there was nothing in the IMF package that dealt with such recapitalisations. The problem with the package was that it demanded a very high level of interest rates that was acting to worsen credit quality problems and further reduce, probably eradicate, commercial bank capital.

…

All three were listed companies and conversations with the investment community strongly suggested that capital raisings were highly unlikely to be successful. The price of Thai bank equity may have collapsed, but all the evidence was that there was plenty of blind capital in Thailand still to be ‘devoured’ as they were forced to shrink their loan books due to their lack of capital. The debt deflation was far from complete. Bagehot and elephant identification II 29 September 1997, Regional For better or for worse, blind capital is once again now free to roam the globe. In Bagehot’s day, there was already a high degree of capital mobility and a ‘devouring’ of foreign capital was common.

The Euro and the Battle of Ideas
by Markus K. Brunnermeier , Harold James and Jean-Pierre Landau
Published 3 Aug 2016

The problem was one that the IMF staff gradually began to think was at the heart of the difficulties: to regain competitiveness, Greece needed some deflation to reduce costs, but deflation raised the real value of debt and made debt levels increasingly unsustainable—the “Devaluation Dilemma” we described in chapter 6. Several IMF officials began to draw parallels with the debt deflation that Irving Fisher, in 1933, had found to be at the root of the Great Depression.40 The implication was that the IMF should have been more straightforward about the need for debt restructuring in 2010 and that it had lost an opportunity to have a positive influence on European developments. For Europeans, the lesson of Greece was clear.

…

Such a policy would directly address the competitiveness gap between peripheral and core countries that builds up through wage restraints in the core countries. While nominal wage cuts in the peripheral countries would also close this gap, it is problematic as debtors would not be able to repay their debts—the “Devaluation Dilemma” discussed in chapter 6. A wage rise in the core countries avoids this debt deflation. In this sense, Germany’s introduction of a minimum wage in 2015 was helpful. The German Bundesbank made some initial steps toward such a communication strategy but was not sufficiently determined and shied away from presenting it as a serious alternative to QE. The Bundesbank has a long tradition of managing inflation expectations and through it wage bargaining.

The Rise and Fall of Nations: Forces of Change in the Post-Crisis World
by Ruchir Sharma
Published 5 Jun 2016

Chapter 7: The Price of Onions 1 Helge Berger and Mark Spoerer, “Economic Crises and the European Revolutions of 1848,” Journal of Economic History 61, no. 2 (June 2001): 293–326. 2 Martin Paldam, “Inflation and Political Instability in Eight Latin American Countries,” Public Choice 52, no. 2 (1987): 143–68. 3 Marc Bellemare, “Rising Food Prices, Food Price Volatility, and Social Unrest,” American Journal of Agricultural Economics, June 26, 2014. 4 “World Bank Tackles Food Emergency,” BBC News, April 14, 2008. 5 Neil Irwin, “Of Kiwis and Currencies: How a 2% Inflation Target Became Global Economic Gospel,” New York Times, December 19, 2014. 6 Jim Reid, Nick Burns, and Seb Barker, “Long-Term Asset Return Study: Bonds: The Final Bubble Frontier?,” Deutsche Bank Markets Research Report, September 10, 2014. 7 Irving Fisher, “The Debt Deflation Theory of Great Depression,” St. Louis Federal Reserve, n.d. 8 David Hackett Fischer, The Great Wave: Price Revolutions and the Rhythm of History (New York: Oxford University Press, 1996). 9 Claudioo Bordio, Magdalena Erdem, and Andrew Filardo, “The Costs of Deflations: A Historical Perspective,” Bank of International Settlements, 2015. 10 “Toward Operationalizing Macroprudential Policies: When to Act?”

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“The Asset-Rich, Income-Poor Economy.” Wall Street Journal, June 19, 2014. “Falling Prices Are Good for Workers.” Lombard Street Research, January 23, 2015. Fischer, David Hackett. The Great Wave: Price Revolutions and the Rhythm of History. New York: Oxford University Press, 1996. Fisher, Irving. “The Debt Deflation Theory of Great Depression.” St. Louis Federal Reserve, n.d. Gavae, Charles. “Back to MV=PQ.” GK Research, January 9, 2014. Hatiuz, Jan. “Revisiting the Risk of Another Bus.” Goldman Sachs Global Investment Research, November 3, 2014. Irwin, Neil. “Of Kiwis and Currencies: How a 2% Inflation Target Became Global Economic Gospel.”

A Failure of Capitalism: The Crisis of '08 and the Descent Into Depression
by Richard A. Posner
Published 30 Apr 2009

Bradv Dennis and Robert O'Harrow Jr., "A Crack in the System," Washington Post, Dec. 29-31, 2008. Chris Farrell, Deflation: What Happens When Prices Fall (2004). Niall Ferguson, The Ascent of Money: A Financial History of the World (2008). Stanlev Fischer and Rudiger Dornbusch, Introduc- tion to Macroeconomics (1983). Irving Fisher, "The Debt-Deflation Theory of Great Depressions," 1 Econometrica 337 (1933). W. Scott Frame and Lawrence J. White, "Fussing and Fuming over Fannie and Freddie: How Much Smoke, How Much Fire?" Journal of Economic Perspectives (Spring 2005): 159. Peter M. Garber, "Famous First Bubbles," Journal of Economic Perspectives (Spring 1990): 35- James D.

Unhappy Union: How the Euro Crisis - and Europe - Can Be Fixed
by John Peet , Anton La Guardia and The Economist
Published 15 Feb 2014

In September 2013, Wolfgang Schäuble, the German finance minister, boasted that the slow return to growth in the euro zone, and the rebalancing of current accounts in deficit countries, was proof that the much-criticised medicine was working:1 Systems adapt, downturns bottom out, trends turn. In other words, what is broken can be repaired. Europe today is the proof. Yet this is to miss the point. The euro’s is a story of survival, not of success. Although it is limping back to growth, its weaker members have sunk deeper into debt. Mass unemployment and debt deflation in Greece are hardly evidence of successful adjustment. The question is not whether economies eventually bottom out, but whether politicians limit or worsen the damage. One answer is to compare the euro zone’s performance with that of the United States (see Figure 12.1). European leaders like to blame the United States for their crisis, and to boast that aggregate public debts and budget deficits are healthier than those of the United States.

The Long Good Buy: Analysing Cycles in Markets
by Peter Oppenheimer
Published 3 May 2020

Stanford Institute for Economic Policy Research, Stanford, CA. Filardo, A., Lombardi, M., and Raczko, M. (2019). Measuring financial cycle time. Bank of England Staff Working Paper No. 776 [online]. Available at https://www.bankofengland.co.uk/working-paper/2019/measuring-financial-cycle-time Fisher, I. (1933). The debt-deflation theory of the great depressions. Econometrica, 1, 337–357. Five things you need to know about the Maastricht Treaty. (2017). ECB [online]. Available at https://www.ecb.europa.eu/explainers/tell-me-more/html/25_years_maastricht.en.html Frehen, R. G. P., Goetzmann, W. N., and Rouwenhorst, K. G. (2013).

A Brief History of Neoliberalism
by David Harvey
Published 2 Jan 1995

-B. 220 democracy demand for 110 excess of 184 as luxury 66 meaning of 206 Democrats (US) 49, 51 consent, construction of 51, 53–4, 62–3 uneven development 92, 93, 103, 110 see also Clinton; Roosevelt Deng Xiaoping 1–2, 120–5 passim, 135–6, 168 deregulation 3, 22, 26, 65, 67, 114, 161 derivative rights 182 Derthick, M. 219 devaluation 103, 105, 135 developing countries 71–4 see also Africa; Asia; debt; inequalities; Latin America; uneven development Dicken, P. 91, 102, 109, 131, 216, 219 dignity, human 5 see also freedom dirigisme 10 disposable commodity, labour as 70, 153, 157, 164, 167–71 dispossession see accumulation dissident movements 5 see also student movements Dongguan 132, 147, 149 Duhalde, E. 105–6 Duménil, G. 207, 213, 219–20 freedom concept 16–17, 18, 24, 26, 30, 33, 209 freedom’s prospect 191, 222 Eagleton, T. 198 earnings see income/wages East Asia 2 and China 122, 141 consent, construction of 59 freedom concept 10, 11, 23, 35 freedom’s prospect 190, 193–4, 197, 199, 206 neoliberal state 66, 72, 85 neoliberalism on trial 154, 156, 169 uneven development 87–94 passim, 96, 97, 106–12, 115, 116, 118 see also China; Hong Kong; Japan; South East Asia; South Korea; Taiwan East and Central Europe 5, 17, 71 neoliberalism on trial 154, 170 uneven development 94, 95, 117 ecosystems see commons Ecuador 95 Edsall, T. 48, 49, 51, 54–5, 211 Edwards, M. 220 egalitarianism 203–4 Eley, G. 208 elites and restoration of power China 123, 145 consent, construction of 39, 42–5, 51, 52 freedom concept 15–19, 23, 26, 29–30, 31–8 freedom’s prospect 197, 203–4 neoliberal state 66, 69, 84 neoliberalism on trial 152, 153, 156 uneven development 90–3, 96–9, 103–6, 108, 112, 114, 117, 119 see also financial system ‘embedded liberalism’ 11–12 employment see labour Enron 32, 77, 162 entrepreneurialism 23, 31 environment see commons equality 120 see also inequalities ERM 98 ethnicity 85 Europe 109, 157 European Union 79, 89, 91–2, 93, 114–15 freedom concept 11–15, 17, 19, 24, 27–8 freedom’s prospect 193–4, 200, 206 uneven development 89, 91–2, 93, 114 see also Britain; East and Central Europe; France; Germany; Italy; Sweden Evans, P. 212 excess capacity 194 exchange as ethic 3, 13 exchange rates 10, 12, 123–4, 141 exploitation of natural resources 8–9, 159, 164, 174–5 export-led growth 107 China 128, 130, 135–7 see also East Asia; FDI; market economy; South East Asia failure of neoliberalism 154–6 see also neoliberalism on trial Falklands/Malvinas war 79, 86 Falwell, J. 49 Farah, J. 219 FDI (foreign direct investment) 6, 7, 23, 28–30 China 21, 123, 125, 126, 129, 133–4, 141, 147 decline 190, 191 uneven development 90–4 passim, 98, 100, 101, 103, 105, 109, 117–18 see also debt; financial system Federal Reserve (US) see Volcker financial system and power 40, 62 China and state-owned banks 123, 125, 126, 129, 133–4, 141, 147 crises 12, 44–8, 68, 189, 193–4 uneven development 94–7, 104–5 see also debt; deflation; inflation decline 190 financialization 161–2 neoliberal state 71–5, 78, 80 neoliberalism on trial 157, 158, 161–2 uneven development 88–93, 94–9, 104–5, 108, 114, 119 see also corporations; currency; elites; FDI; IMF; income; Treasury; World Bank Fisher, W. 222 Fishman, T. 216 ‘flexible accumulation’ 75–6 flexible labour 100, 112 force see coercion/force Ford, G. 46 foreign direct investment see FDI Forero, J. 214, 217 Fortune 500 17, 44 four modernizations (China) 120 Fourcade-Gourinchas, M. 208, 211 Fox, V. 98 France 41, 157, 200 freedom concept 5, 11, 13, 15, 17, 19, 24, 27 neoliberal state 66, 84, 85 uneven development 91, 115, 117 Frank, T. 172, 210, 211, 213 free trade/market see market economy freedom, concept of 5–38, 207–9 as catchword 39, 41–2 class power 31–6 definitions 36–7 divergent concepts 183–4 four cardinal 183, 206 neoliberal theory, rise of 19–31 neoliberal turn, reasons for 9–19 freedom’s prospect 36–8, 186–206, 221–2 end to neoliberalism, possible 188–98 neoliberalism, alternatives to 198–206 Freeman, J. 46 French, H. 216 Friedman, M. 8, 20, 22, 44 future see freedom’s prospect G7/G8 countries 33, 66, 94 ‘Gang of Four’ see Hong Kong; Singapore; South Korea; Taiwan GATT 100 General Motors 130, 134, 135, 157 Geneva Conventions 6, 198 George, S. 207, 222 Germany 66, 87, 91, 157 West 24, 41, 88–9, 90 Gilder, G. 54 Gill, L. 220, 222 Gills, B. 221 Gindin, S. 28, 208, 219 Giuliani, R. 48, 100 global warming 172, 173, 174 globalization 70, 80, 159, 163 see also market economy; WTO Glynn, A. 208 Goldwater, B. 2 Gowan, P. 209, 213 Gramsci, A. 39, 78 Gray, J. 152–3 Guangdong 121, 128, 135, 136, 137 Haggard, S. 211 Hainan Island 131 Hale, D. and L. 215, 216 Hall, P. 211 Hall, S. 211 Harris, P. 220 Harrison, J. 208 Hart-Landsberg, M. 215, 217 Harvey, D. 211, 212, 213, 219, 221, 222 freedom concept 14, 207, 209 Hayek, F. von 20, 21, 22, 37, 40, 57 Hayter, T. 211 health, poor 154 Healy, D. 212 hedging 97–8 hegemony see power Held, D. 222 Henderson, J. 72, 213 Henwood, D. 209 Hofstadter, R. 82–3 Holloway, J. 219 Hong Kong 2, 89, 96, 157 and China 121, 123, 128, 130, 132, 136, 138, 141, 147 Hout, T. 216 Huang, Y. 124, 215 Huawei 134–5 Hulme, D. 220 human rights see rights hyper-inflation 193 Hyundai 107, 111 IBM 13, 146 ideologies see neoliberalism; values illiteracy 156 IMF (International Monetary Fund) 3 China 122, 141 consent, construction of 40, 54, 58 freedom concept 8, 10, 12, 24, 30 freedom’s prospect 185, 189, 201, 205 neoliberal state 69, 72, 73, 75 neoliberalism on trial 152, 154, 162–3, 175, 182 uneven development 92–9 passim, 103, 105–6, 111, 116–18 imperialism see neocolonialism imports 139–40 cheap 101 substitution 8, 98 income/wages China 126–7, 136, 138, 143–4, 148 falling 18 individual 176–7 inequalities 15–19, 88, 92, 100 neoliberalism on trial 154, 156 policies 12 and productivity 25 uneven development 88, 92, 100, 114 India 9, 134 freedom’s prospect 186, 194, 202, 206 neoliberal state 76, 85 neoliberalism on trial 154, 156, 174 individualism 23, 42, 57 neoliberal state 65–6, 79–8, 82, 85–6 see also freedom Indonesia 199 and China 138, 139 freedom concept 31–2, 34 neoliberal state 76, 85 neoliberalism on trial 153, 163, 167, 168, 175, 178 uneven development 89, 91, 96–7, 108–9, 117, 118 inequalities China 142–51 income 15–19, 88, 92, 100 increased 89–90, 118 see also class; developing countries; power; uneven development inflation 1, 135 consent, construction of 51, 59 control as only success 156 freedom concept 12, 14, 22, 23–5 freedom’s prospect 189, 193 stagflation 12, 22, 23, 24–5, 57 uneven development 88, 93, 100 informal economy 103 information technology 3–4, 34, 157, 159 innovation see technology, new Institute of Economic Affairs (UK) 22, 57 institutions 40, 64, 75 see also IMF; World Bank; WTO intellectual property rights 64, 68, 160 interest rates 23–4, 51, 59, 99, 162 international agreements 6, 92, 198 see also IMF; WTO intervention 20–1, 79 lack of 69 see also pre-emptive action investment see FDI Iran 28, 85, 139, 206 Iraq 179–80, 181, 204 reconstruction 184 War 6–7, 9, 35, 39, 153, 160, 184, 197 Isaacs, W. 193 Islam 83, 186 see also Middle East Israel 12 Italy 66, 96 freedom concept 11, 12, 13, 15 Japan 2, 59, 156 and China 123, 134, 136, 138–40, 142 freedom concept 10, 11, 23 freedom’s prospect 190, 193 neoliberal state 66, 85 uneven development 87–94 passim, 107 Jensen, D. 186 Jessop, B. 211 Jevons, W.

Grave New World: The End of Globalization, the Return of History
by Stephen D. King
Published 22 May 2017

If a central bank steps in to prevent bankruptcies – via aggressive interest rate cuts and generous ‘lender of last resort’ activities – the subsequent recovery will be even more financially fragile. Over a number of economic cycles, the degree of financial fragility rises to such an extent that monetary easing and lender of last resort facilities eventually begin to lose their potency. A debt-deflation downward spiral threatens to take hold. Falling prices raise the real value of outstanding debts, triggering even more liquidation and, eventually, a total collapse in economic activity. Seen through Minsky’s eyes, the ‘Great Moderation’ was always going to end in tears. Central bank actions designed to limit downswings – or, indeed, to prevent downswings from happening altogether – only served to increase financial fragility and thus the risk of an eventual economic and financial meltdown.

Rethinking the Economics of Land and Housing
by Josh Ryan-Collins , Toby Lloyd and Laurie Macfarlane
Published 28 Feb 2017

This would lead to a build-up of debt which eventually would exceed what borrowers could pay off from their incoming revenues, forcing them to borrow to fund interest payments – what Minsky called ‘Ponzi financing’. Under such a scenario, economies become highly fragile and even small economic shocks could lead to firm defaults. The process would then go into reverse, with business investment falling, banks defaulting and unwilling to lend and debt-deflation ensuing. Minsky’s writings were mainly focused on the role of firms and their interaction with the banking system rather than households and mortgage credit. However, his theories were highly applicable to the financial crisis of 2007–8, when a long period of apparent stability (the ‘Great Moderation’) and rising asset prices led to increasingly risky behaviour by households and banks in borrowing and lending against land and housing.

Expected Returns: An Investor's Guide to Harvesting Market Rewards
by Antti Ilmanen
Published 4 Apr 2011

Deflation tends to hurt most asset classes, so it is difficult to hedge against. Nominal government bonds are the most obvious hedges—but even they may be less than fully effective if a deflationary recession raises market concerns about sovereign creditworthiness. Unfortunately, the current environment resembles classic debt deflation (which is preceded by excessive debt accumulation and characterized by de-leveraging) more than it does the benign deflation experience of the late 19th century, when stock prices, real output, and incomes all rose tremendously. In the latter case, deflation was caused by technological improvement (increased productivity) during a period when money supply growth was severely constrained by use of the gold standard.

…

We simply do not know what it takes to unmoor those expectations, what it takes to get the genie back in the bottle if this happens, and if the Fed has the stomach for it. Bond vigilantes worry about the Fed’s priorities and its independence. Even if the unmooring of inflation expectations to the upside is scary, the impact of global deflation, if it occurs, is even worse. Debt deflation and hyperinflation are the worst destroyers of wealth. Most policymakers now fear the former more than the latter, which makes inflation (though not hyperinflation) the more likely medium-term outcome. Sovereign creditworthiness may be reassessed Consistent with both themes discussed above, re-rating of perceived creditworthiness may take place.

The Curse of Cash
by Kenneth S Rogoff
Published 29 Aug 2016

Had it been done forcefully and early on, and especially coincident with the large initial fiscal impulse, a higher inflation target might have helped sustain enough momentum to avoid the liquidity trap that ultimately ensnared so many countries. Higher inflation would have helped both to stimulate demand through lower real interest rates and to mitigate adverse debt deflation dynamics. And it was not necessary to do this on a permanent basis: the key was responding quickly to the crisis.11 True, a large branch of the zero bound literature is predicated on the view that the inability to promise higher inflation, even when essential, is inherently an intractable credibility problem.

In FED We Trust: Ben Bernanke's War on the Great Panic
by David Wessel
Published 3 Aug 2009

Among Bernanke’s most visible roles was promoting, explaining, and defending Greenspan’s strategy of keeping interest rates very low. This was, in part, a deliberate campaign to reduce the risk of deflation — a generalized decline in prices, which can lead to a debilitating disease that makes it ever harder for borrowers to pay back debts. Deflation was a major feature of the Great Depression, and most economists thought it had been eradicated until it reappeared in Japan in the 1990s. As U.S. inflation rates fell in early 2002, the Fed saw deflation as a possibility for which it had to prepare. So in November 2002, to a group of economists in Washington, Bernanke delivered a talk titled “Deflation: Making Sure ‘It’ Doesn’t Happen Here.”

Rise of the Robots: Technology and the Threat of a Jobless Future
by Martin Ford
Published 4 May 2015

See Consumer Price Index (CPI) Craigslist, 95 Creative Machines Lab (Cornell University), 108 creativity, machines demonstrating, 108–113 credential inflation, 252 credentials, higher education, 142 Crichton, Michael, 244 crowd sourcing, 95 “The Cult of Kurzweil” (Geraci), 235 curiosity, machines demonstrating, 108–113 cyber attack, cloud robotics and, 22–23 Cyberdyne, 157 cybernation, 30 “cyborg,” 106 Cycle Computing, 104–105 Cynamon, Barry, 199, 200, 214 Dana-Farber Cancer Institute, 149 “Darci” software, 112–113 DARPA. See Defense Advanced Research Projects Agency (DARPA) debt deflation and, 217 financial crisis and, 218–219 income inequality and consumer spending, 214 ratio to income, 199–200 Deep Blue computer, xiv, 97–98, 122 deep learning, 92–93, 121, 231 Defense Advanced Research Projects Agency (DARPA), 80, 181–183 deflation, 216–217 Delta Electronics, Inc., 10 Delta Cost Project, 140 demand, 196–197 in China, 223–227 productivity and, 207–208 Democrats, income distribution preferred by, 47n design philosophy, 254–255 developing countries, 10–12, 25, 78–79 diagnostic tool, repurposing Watson as, 102–103 digital computer, effect of, 33–34 digital divide, 78 digital economy, long-tail opportunities in, 76–78 DiNardo, Courtney, 148 disruptive technology, xviii, 66 division of labour, 73 Dow News Service, 113–114 Drexler, K.

Hard Times: The Divisive Toll of the Economic Slump
by Tom Clark and Anthony Heath
Published 23 Jun 2014

Because deep recessions do such damage, it is important to be grateful for one great mercy: the prevailing policy of easy money in both Britain and America. Record low interest rates and liberal use of the printing presses represent one crucial break with the early 1930s, and have allowed both countries to avoid the trap of debt deflation and the wholesale destruction of jobs that has historically come with it. We have not dwelt on this point because the reflationists have mostly carried the day; it is, however, important to register, since undue panic about inflation, or pressure from savers fed up with low returns, could yet force a premature policy shift.

Value of Everything: An Antidote to Chaos The
by Mariana Mazzucato
Published 25 Apr 2018

After acquiring Thames Water in 2006, it used securitization to raise the company's debt from £3.2 billion to £7.8 billion by 2012, while avoiding major infrastructure investment,12 The strategy raised alarm among environmentalists when, in 2017, Macquarie acquired the Green Investment Bank, a major financer of renewable energy and conservation projects set up by the UK government five years earlier. Moreover, once financiers realize that very little value stands behind their liabilities, they try to issue even more debt to refinance themselves. When they cannot continue to do so, a debt deflation occurs, such as the one that began in the US and Europe in 2007-8 and was still depressing global growth rates ten years later. Society at large then bears the costs of the speculative mania: unemployment rises and wages are held down, especially for those left behind during the previous economic expansion.

Capital Ideas: The Improbable Origins of Modern Wall Street
by Peter L. Bernstein
Published 19 Jun 2005

That journal is now nearly sixty years old and commands wide respect among economists, statisticians, and mathematicians. The first issue of Econometrica, which appeared in January 1933, contained an introductory article by the famous Harvard economist and the first president of the Econometric Society, Joseph Schumpeter, as well as a timely paper by Irving Fisher titled “The Debt-Deflation Theory of Great Depressions.” The first fruit of Cowles’s own research into market forecasting, an article titled “Can Stock Market Forecasters Forecast?,” appeared in the July 1933 issue. A three-word abstract of the article concluded: “It is doubtful.” Cowles analyzed the track records of four sets of forecasters: sixteen leading financial services that furnished their subscribers with selected lists of common stocks; the purchases and sales of stocks made by twenty leading fire insurance companies; a test of the Dow Theory gleaned from Hamilton’s editorials in The Wall Street Journal; and the twenty-four publications that had set Cowles off on his quest, including sixteen professional financial services, four financial weeklies, one bank letter, and one investment-house letter.

How Markets Fail: The Logic of Economic Calamities
by John Cassidy
Published 10 Nov 2009

“This,” Minsky noted drily, “is likely to lead to a collapse of asset values,” which, in turn, can lead to “a spiral of declining investment, declining profits, and declining asset prices.” Unless the financial authorities intervene, lending public money freely to whoever needs it, the ultimate result could well be “a traumatic debt deflation and deep depression.” In what was perhaps a poke at the efficient market hypothesis, Minsky described his thesis that capitalist economies inevitably progress from conservative finance to reckless speculation as the “financial instability hypothesis.” Minsky described it as an interpretation of Keynes’s General Theory, and he also credited the Austrian economist Joseph Schumpeter for influencing his views.

Narrative Economics: How Stories Go Viral and Drive Major Economic Events
by Robert J. Shiller
Published 14 Oct 2019

“Unemployment and Left-Wing Radicalism in Weimar Germany.” In Peter Stachura, ed., Unemployment and the Great Depression in Weimar Germany, 209–25. London: Palgrave Macmillan. Fisher, Irving. 1928. The Money Illusion. New York: Adelphi. ________. 1930. The Stock Market Crash—and After. New York: Macmillan. ________. 1933. “The Debt-Deflation Theory of Great Depressions.” Econometrica 1(4):337–57. Fisher, R. A. 1930. The Genetical Theory of Natural Selection. Oxford: The Clarendon Press. Fisher, Walter R. 1984. “Narration as a Human Communication Paradigm: The Case of Public Moral Argument.” Communication Monographs 51(1):1–22. Flandreau, Marc. 1996.

Inflated: How Money and Debt Built the American Dream
by R. Christopher Whalen
Published 7 Dec 2010

But Chris correctly points out that large and monetized fiscal deficits eventually may cause, in the medium term, a rise in expected and actual inflation as they did after the Civil War and World War II. Indeed, the temptation to use a moderate and unexpected inflation tax to wipe out the real value of public debt and avoid the debt deflation of the private sector is powerful, and history may repeat itself—even if the short-term maturity of U.S. liabilities, the risk of a crash of the U.S. dollar and associated runaway rising inflation, and the related risk that the United States’ foreign creditors may pull the plug on the financing of the U.S. deficit may constrain these inflationary biases.

European Spring: Why Our Economies and Politics Are in a Mess - and How to Put Them Right
by Philippe Legrain
Published 22 Apr 2014

The problem with this crisis is that there is no money.”315 Looming deflation – a sustained period of falling prices – could exacerbate all these problems. Falling prices would cause people to postpone spending because they expect things to be cheaper in future, entrenching stagnation. Worse, whereas inflation erodes the value of debt, deflation would increase the eurozone’s already huge debt burden. Falling prices would also increase real interest rates: since nominal interest rates are already near zero and can scarcely fall below, deflation raises the real cost of borrowing, crimping investment. Even very low inflation – the eurozone’s was a mere 0.8 per cent in the year to February 2014 – is a drag.

The Sovereign Individual: How to Survive and Thrive During the Collapse of the Welfare State
by James Dale Davidson and William Rees-Mogg
Published 3 Feb 1997

As the nationstate system breaks down, risk-averse persons who formerly would have sought employment with government may find an alternative in affiliating as retainers to the very rich. 21. You should expect a slowdown or decline in per capita consumption in countries such as the United States, which have been the leading consumers of the world's products in the late stages of industrialism. 22. Debt deflation may accompany the transition to the new millennium. 23. The death of politics will mean the end of central bank regulation and manipulation of money. Cybermoney will become the new money of the Information Age, replacing the paper money of Industrialism. This means not only a change in the fortunes of banknote printers, it implies the death of inflation as an effective means by which nationstates can commandeer resources.

Them And Us: Politics, Greed And Inequality - Why We Need A Fair Society
by Will Hutton
Published 30 Sep 2010

The answer will depend on the asset prices against which debt is collateralised, the rate of interest, and the spread, growth and sustainability of economic activity in each individual country. What can be said is that when Japan’s aggregate private debt to GDP ratio rose above 300 per cent it triggered a prolonged period of deleveraging and debt deflation that lasted more than fifteen years. So 300 per cent probably represents a ceiling. In Britain the same is likely to be true, and particularly indebted sectors – both commercial real estate and residential property – will have to see a fall in borrowing. Equally problematic is determining a sustainable level of public debt, which is certain to rise to maintain economic activity in almost every country as private debt starts to fall.

More: The 10,000-Year Rise of the World Economy
by Philip Coggan
Published 6 Feb 2020

More than 1,000 US banks closed in every year from 1930 to 1933,70 and as deposits vanished into thin air, the money supply fell by a third.71 Commodity prices were particularly hard hit, with wheat prices falling by two-thirds in two years.72 The Great Depression United States, GDP per person, 2011 prices, $’000 Source: Maddison Project Database This created a problem, defined by the economist Irving Fisher as “debt deflation”. The income of farmers depended on the level of crop prices and thus dropped by around 65%.73 But the value of their debts was fixed in nominal terms. The same problem was true of property owners; their rental income fell but their debt payments were unchanged. The natural inclination was to sell assets to try to pay off the debts.

Extreme Money: Masters of the Universe and the Cult of Risk
by Satyajit Das
Published 14 Oct 2011

Ben Bernanke “The economic outlook” (5 May 2005), Testimony to the Joint Economic Committee, US Congress. 6. “Savings versus liquidity” (11 August 2005) The Economist. 7. Robin Harding “Bernanke says foreign investors fuelled crisis” (18 February 2011) Financial Times. 8. Fisher, Irving “The debt-deflation theory of great depressions” (1933) Econometrica: 337–57. 9. William White “Is price stability enough?” (April 2006) Bank of International Settlements. 10. Gillian Tett of the Financial Times coined the phrase; see Gillian Tett “Should Atlas still shrug?” (15 January 2007) Financial Times. 11.

Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown
by Philip Mirowski
Published 24 Jun 2013

In the rush to judgment, anyone who said or wrote anything about some kind of bubble or imbalance or financial instability sometime in the 2000s suddenly sought to be credited as rivaling the Oracle at Delphi, engaging in the most exquisite augury. Some Nobel winners in particular pushed this ploy well beyond the breaking point, eliding prediction proper, and instead suggesting that anyone who had ever produced a mathematical model mentioning bank runs or financial fraud or irrational expectations or debt deflation or (fill in the blank) was proof positive that the economics profession had not been caught unawares.23 It helped if the interlocutor stopped paying attention to what had been taught in the macroeconomics classes across the most highly ranked economics departments. It got so bad after a while that any mention of market failure or departure from equilibrium was supposed to function as a “get out of jail free” card in 2009.

Money and Government: The Past and Future of Economics
by Robert Skidelsky
Published 13 Nov 2018

K., 59 Callaghan, James, 169–70, 197 Cameron, David, 221, 225, 227 Cannan, Edwin, 100 capital movements and banking crises, 331, 333, 333–43, 334, 335, 337 controls on in post-war era, 308, 332 hot money as main story, 318–19, 337, 382 Keynes on, 382 liberalization from 1970s, 17, 318–19, 332–3 post-war liberalization, 16 recycling of OPEC surpluses (1970s), 308, 332 regulated in Great Depression era, 16 see also global imbalances 464 i n de x Carney, Mark, 261–2, 273 central banks actions during 2008 crisis, 3, 217, 219, 234–5, 253–4, 254, 256–8, 359 forecasting models, 5, 197, 233, 310–11 ‘dual mandate’ proposal, 358 during Great Moderation, 215, 252–3, 310, 359, 360 independent, 1, 32, 43, 129, 140, 188, 198, 215, 249, 272–3 inflation targeting, 2, 101, 188–9, 189, 196, 215, 249–53, 347, 358 in Keynesian economics, 101, 102–4, 105, 115–16 need for revived regulatory tools, 361 in new macroeconomic constitution, 352, 355, 359–61 open-market operations, 71, 102–4, 105, 185–6, 257–8 in post-W W1 period, 100, 102–6 pre-crash models of 2000s, 197, 212–13, 233, 310–11 purchase of government debt, 234–5, 256–8, 260–61, 274 and quantity theory, 61, 69, 70, 71 ‘resolution regimes’, 364–5 ‘stress testing’ by, 364 Taylor Rule, 213, 251 and twentieth-century monetary reformers, 60, 61, 69, 70, 71, 99, 100, 101, 125, 129, 178, 200 see also Bank of England; Bank Rate; European Central Bank; Federal Reserve, US Chamberlain, Neville, 113 Chang, Ha-Joon, 378 Chartist movement, 48 Chi Lo, 381–2 Chicago School, 174, 194, 349, 350–51 see also Friedman, Milton China and 2008 crash, 217, 218 ancient, 33, 73 bank liquidity ratios, 364 current account surplus, 331, 333, 334, 336, 338–41, 342, 380, 381 Churchill, Winston, 99, 109, 110 City of London, xviii, 58, 113, 226, 328, 367 Clark, John Bates, 288 class business class as not monolithic, 7 creditors and debtors, 29–32, 37 growth of merchant class, 79 and ideas, 13–14 and Keynesian theory, 128–9, 130–31, 169–70, 386–7 and Marx, 6, 7, 14, 130, 131, 288, 296, 386 and neo-liberal model, 305, 374 rentier bourgeoisie, 31, 43, 288, 297 shift of power from labour to capital, 7, 32, 169–70, 187, 190, 192–3, 299–301, 304, 305–6 and theory of money, 27–8 under-consumption theory, 293–6, 297–8, 303–6, 370 see also distribution; inequality classical economics tradition, xviii abstraction from uncertainty, 385–6 ‘anti-state’ view as deception, 93 contrast with Keynesian-theory modelled, 132–3 ‘crowding out’ argument, 83–4, 109–11, 226, 233–5 government as problem not solution, 1, 3, 6, 9, 10, 29, 74–5, 76, 82–3, 85–7, 93, 347 and Keynes, 122–3, 128, 130, 175–6 and labour flexibility, 56, 245 money supply in, 1, 38–9, 47 no theory of output and employment, 96 465 i n de x classical economics tradition – (cont.) post-W W1 ‘back to normalcy’, 96–7, 102 and price of labour, 107, 108, 115, 121–2, 123, 128, 130, 132, 138, 172 ‘real’ analysis of money (‘money as veil’), 22, 24, 37, 45, 84–5, 121 repudiation of mercantilism, 74–5, 78, 79, 81–5, 93 and role of state, 73, 74–5, 76, 81–5, 109, 110 Smith’s ‘invisible hand’ metaphor, 10, 312, 385 and unemployment, 10, 37, 56, 96, 118, 121–2, 123, 128, 129, 130, 138, 172 wage-adjustment story, 107, 108, 115, 121–2, 123, 128, 130, 132, 172 Walras’ general equilibrium theory (1874), 10, 173, 181, 385 see also balanced budget theory; equilibrium, theory of; neoclassical economics tradition Clay, Henry, 115 climate change, 383 Clinton, Bill, 309, 319 Coalition government (2010–15), 227–8, 243–4, 265–6 Cochrane, John, 233–4 Coddington, Alan, 173 Colbert, Jean-Baptiste, 75, 140 Cold War, 140, 158, 159, 162–3, 186, 374 collateralized debt obligations (CDOs), 323–4, 327, 330 collateralized loan obligations (CLOs), 327 communism, xviii, 13, 16, 175 collapse of (1989–90), xviii, 16 see also Marx, Karl; Marxism Congdon, Tim, 40, 105, 185, 197, 258, 268–9, 276, 279–81 on free trade, 377 and monetarism, 279–85 Money in the Great Recession (2017), 281–2, 287 ‘real balance effect’ argument, 283–5 total rejection of fiscal policy, 280, 285–7 Conservative Party ‘Barber boom’, 167, 168 governments (1951–64), 142–3, 147, 150, 152 Howe’s 1981 budget, 186–7, 192 and Keynesian ascendancy, 138–9, 142–3, 147, 150, 152 Lawson’s counterrevolution, 185, 192–3, 222, 358 Maudling’s ‘dash for growth’, 150, 152 narrative of 2008 crash, 226–8, 229–31, 233, 234–5, 237–9 and orthodox Treasury view in 1920s/30s, 109–10, 112, 113 Osborne’s economic policy, 227–8, 229–30, 231, 233, 234–5, 237–9, 243–4, 244, 245 supply-side policies, 197 Constantini, Orsola, 171 Corn Laws, repeal of (1846), 15, 85 counter-orthodoxy to Keynesianism ‘Colloque Walter Lippmann’ conference (1938), 174–5 emergence of, 163, 170, 171–2, 174–8 Friedman’s onslaught, 177–83 Hayek’s Road to Serfdom , 16, 175–6 inflation as greatest evil for, 162 Mont Pelerin Society, 176–7 rooted in political ideology, 6, 93, 176–8, 183–4, 202–3, 245–6, 258, 287, 292, 354, 386 see also Friedman, Milton; monetarism; neo-liberal ideology 466 i n de x Crafts, Nicholas, 85, 111 credit and debt and anti-Semitism, 30–31 ‘bank lending channel’, 64 credit theory of money, 23, 24–7, 33, 34, 39, 100–101, 102–3 ‘debt forgiveness’, 30 derivation of word ‘credit’, 30 doctrine of ‘creditor adjustment’, 127–8, 139, 159 excess credit problem and 2007–8 crisis, 4, 104, 303, 366–7 and gold-standard, 53 ‘hoarding’ during Great Depression, 104, 127 and inflation/deflation, 37, 42, 47 Keynes and control of credit, 100–101, 102–3, 105, 115–16 Keynes’ Clearing Union plan (1941), 127–8, 139, 159, 380–81 loan sharks and ‘pay day loans’, 32 Locke’s social contract theory, 41–2 moral resistance to credit, 30–31 private debt and 2008 collapse, 3–4 prohibition of usury, 31 USA as post-W W1 creditor, 95, 103 and value of money, 27–8, 29–31 see also national debt credit default swaps (CDSs), 324–5 credit rating agencies (CR As), 320, 326–7, 329–30 Crimean War, 91 criminality, 3, 4, 5, 7, 328, 350, 366, 367 Cunliffe Report (1918), 54–5, 102, 145 Currency School, 49–50 current account imbalances see balance of payments; global imbalances Dale, Spencer, 275 Dante, Divine Comedy, 31 Darling, Alistair, 224, 225, 254 Dasgupta, Amir Kumar, 12–13 Davies, Howard, 253 de Grauwe, Paul, 341, 376, 377 debt see credit and debt; national debt deflation ‘Austrian’ explanation of recessions, 33, 104, 303 classical view of, 44 contemporary, 358, 360 and debtor class, 37 depressions in later nineteenthcentury, 9, 15, 51–2, 89 at end of Napoleonic wars, 48 and hoarding, 64, 104 in inter-war Britain, 107–8 and quantity theory, 32–3, 60, 65, 66 US ‘dollar gap’, 159 DeLong, Brad, 225 democratic politics Bretton Woods system, 16, 139, 374 corrupted capitalism as threat to, 351, 361 election finance, 7 EU ‘democratic deficit’, 376 extensions of franchise, 87, 96, 100 neo-liberal capture of, 6, 292 political left in 1960s, 148–9, 150 and ‘public choice’ theory, 198–9 Rodrik’s ‘impossible trinity’, 375 social democratic state, 16, 149, 176, 198, 292, 293, 303–4, 348, 373–4 structural power of finance, 6–7, 309 taboos against racism, 383 twentieth-century triumph of, 32, 96 unravelling of social democracy (1970s), 16, 304 467 i n de x Democrats, American, 151, 152 Descartes, Rene, 22 developing countries and 2008 crash, 217 Keynesian era growth, 162 in monetarist era, 186 ‘neo-liberal’ agenda of IMF, 139, 181, 318–19 ‘peripheries’ in gold standard era, 56–7 and promise of globalization, 17 and protectionism, xviii, 90, 378 World Bank loans to, 332 Devine, James, 298 Dicey, A.

Money Changes Everything: How Finance Made Civilization Possible
by William N. Goetzmann
Published 11 Apr 2016

Shares in American corporations promised not only a dividend cash flow but also a stake in tangible corporate assets whose monetary value would automatically rise when the government printed money. Like Keynes, Fisher was a progressive who believed that economists could help solve the world’s problems. He introduced mathematical methods of economics to America and is famous for his macroeconomic theories about the quantity theory of money and debt-deflation market cycles. Fisher’s contribution to financial economics was particularly important. He took the mathematics of present value (first formalized by Fibonacci!) and applied it to investment decisions. In Fisher’s analysis, corporate managers acting in the best interests of shareholders should choose projects with the highest positive net present value that takes into account not only the time value of money but also the risk of the project.

Liberalism at Large: The World According to the Economist
by Alex Zevin
Published 12 Nov 2019

This setback overcome, worse was to follow. The Great Depression was the most acute disappointment yet for liberals, who struggled to diagnose its causes or prescribe its cures. Keynes at Cambridge, Fischer at Yale and Hayek at the LSE differed in their attempts at each – underconsumption, to be countered by pump-priming; debt-deflation, corrected by central bank action to raise prices; over-investment, leaving markets to clear – but at a deeper level they were united in seeking liberal solutions to the crisis of the epoch.20 So too, in testing these ideas by trial and error, Hoover and Roosevelt were both liberals, if Roosevelt with much greater success as the better politician.