debt deflation

The New Depression: The Breakdown of the Paper Money Economy

by Richard Duncan  · 2 Apr 2012  · 248pp  · 57,419 words

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

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additional debt strongly suggests that this paradigm has reached and exceeded its capacity to generate growth through further credit expansion. If credit contracts significantly and debt deflation takes hold, this economic system will break down in a scenario resembling the 1930s, a decade that began in economic disaster and ended in geopolitical

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buy assets denominated in their own currencies. Their purpose was to boost the domestic liquidity of each of their respective countries in order to prevent debt deflation at home. Meanwhile, China’s central bank created the equivalent of $1.7 trillion between the end of 2007 and mid-2011, using the money

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growth. The final assumption is that private sector debt will remain unchanged in both years. Two percent economic growth should be enough to prevent a debt deflation downward spiral; however, it is unlikely to be enough to cause the private sector to significantly increase its level of borrowing. Therefore, it is assumed

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-faire method this time would be even more extreme. The nation’s gold stock is worth approximately $431 billion (at $1,650 per ounce). The debt deflation that would be necessary to return the credit supply to that level would destroy the world as we know it. Rothbard and von Mises were

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. 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

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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

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there is no clearer explanation of the manner in which our economy would collapse should government intervention cease. Fisher’s Theory of Debt-Deflation Fisher believed that overindebtedness and deflation were the two dominant factors in the great booms and depressions. He wrote as explanations of the so-called

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Deal policies, which he referred to as artificial respiration: The depression out of which we are now (I trust) emerging is an example of a debt-deflation depression of the most serious sort. The debts of 1929 were the greatest known, both nominally and really, up to that time. Had no “artificial

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of inflation. 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

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, 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. However, the impact that deflation would have on asset

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and would benefit from mild deflation. That sector is a net creditor to the amount of $6.1 trillion. Ice Storm Of course in severe debt-deflation almost everyone would lose because the financial system would collapse as a result of massive bankruptcies and defaults. Therefore, even the creditors would suffer as

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tend to perform badly when inflation at the CPI level exceeds 4 percent, in a weak economic environment, and, particularly, during a severe period of debt deflation. 3. Bonds benefit from disinflation or mild deflation and suffer when there is inflation. In the third quarter of 2011, the yield on ten-year

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by more than 30 percent on average since the crisis began and they could fall further, even significantly further in the case of a severe debt-deflation scenario. Even then, if well located, rental properties would continue to generate rental income. In a worse-case scenario, rents would fall significantly from current

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, but the debt owed would remain the same, which would effectively reduce the burden of the debt. The risk, however, is that in a severe debt-deflation, rents would fall so much that the rental income would be insufficient to service the mortgage. A prudent loan-to-value ratio mitigates that danger

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the crisis began in 2008. It is uncertain how much longer those measures can be sustained. Should they cease altogether, there would be a horrible debt-deflation similar—in cause and consequence—to that which occurred during the Great Depression. Government attempts to prevent that outcome, or political developments that drive policy

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have an extraordinary influence on both. Notes 1. From The Constitution of Liberty (Chicago: University of Chicago Press, 1960), p. 338. 2. Irving Fisher, “The Debt-Deflation Theory of Great Depressions,” Econometrica (October 1933). Conclusion This is the third book I have written on the crisis in the global economy. The Dollar

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transformation of U.S. economy by U.S. domestic causes “Crowding in” “Crowding out” Currencies, trade balances and Current account balances. See Balance of payments “Debt-Deflation Theory of Great Depressions, The” (Fisher) Deflation. See Inflation and deflation Deindustrialization Demand deposits, commercial bank funding and Democratic Party Derivatives: consequences of regulating U

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France (White) Financial sector: debt and lack of liquidity reserve requirements and credit expansion Fiscal stimulus, needed with additional quantitative easing Fisher, Irving theory of debt-deflation Fixed-interest-rate debt, in diversified portfolio Flow of Funds Accounts of the United States Food prices: deflation and excluded from CPI quantitative easing and

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’s effects on Human Action (von Mises) Hyperinflation Inflation and deflation credit and inflation derivative regulation and effects on asset classes Fisher’s theory of debt-deflation inflation in 2011 inflation likely in 2012 inflation likely without additional quantitative easing and fiscal stimulus New Great Depression scenarios and protectionism and wealth preservation

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on Production incomes, in Mitchell’s theory of business cycles Profits: credit expansion’s effect on in Mitchell’s theory of business cycles Property rights, debt-deflation and Protectionism: inflation and New Great Depression scenarios and Purchasing Power of Money: Its Determination and Relation to Credit, Interest and Crises, The (Fisher) Quantitative

Crisis Economics: A Crash Course in the Future of Finance

by Nouriel Roubini and Stephen Mihm  · 10 May 2010  · 491pp  · 131,769 words

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

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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

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of their debts, people fell behind. Fisher called this the “great paradox”—the more people pay, the more their debts weigh them down. This is debt deflation. To understand it better, let’s consider its counterpart, what might be called “debt inflation.” Imagine that you are a firm or a household, and

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incurred the debt in the first place. For this simple reason, inflation is the debtor’s friend: it effectively erodes the value of the original debt. Deflation, however, is not the debtor’s friend. Let’s go back to our original example of a ten-year loan at an interest rate of

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the first place. Unfortunately, even though each dollar is worth more, you now have fewer of them because your wages have declined. The upshot of debt deflation is that debtors—households, firms, banks, and others—see their borrowing costs rise above and beyond what they originally anticipated. And during a major financial

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refuse to lend it, which only exacerbates the liquidity crunch. As credit dries up, more and more people default, feeding the original cycle of deflation, debt deflation, and further defaults. The end result is a depression: a brutal economic collapse in which a nation’s economy can contract by 10 percent or

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thought this to be “needless and cruel.” Instead, he counseled that policy makers “reflate” prices up to precrash levels. As he put it, “If the debt-deflation theory of great depressions is essentially correct, the question of controlling the price level assumes a new importance; and those in the drivers’ seats—the

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in 1694, and it had created liquidity facilities similar to those devised in the United States. But these moves failed to halt the prospect of debt deflation, and so in March 2009, in a bit of quantitative easing of its own, the Bank of England pledged to buy some £150 billion worth

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, a moderate rate of inflation helps erode the real value of public debt, reducing the burden. At the same time, it resolves the problem of debt deflation, reducing the real value of private liabilities—fixed-rate mortgages, for example—while increasing the nominal value of homes and other assets. This is a

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“It” Happen Again? Essays on Instability and Finance (Armonk, N.Y.: M. E. Sharpe, 1982), 59-70, 90-116. 52 Irving Fisher: Irving Fisher, “The Debt-Deflation Theory of Great Depressions,” Econometrica 1 (1933): 346. 54 The Austrian School: See Steven Horwitz, “The Austrian Marginalists: Menger, Böhm-Bawerk, and Wieser,” and Peter

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,” 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

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the chart at http://www.visualizingeconomics.com /2009/08/02/prices-inflation-and-deflation-great-depression-vs-great-recession /. 142 “Unless some counteracting cause . . .”: Fisher, “Debt-Deflation Theory,” 346, 347. 143 “open market operations”: A useful introduction is M. A. Akhtar, Understanding Open Market Operations (New York: Federal Reserve Bank of New

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/index.php?q=node/3079. Ferguson, Niall. The Ascent of Money: A Financial History of the World. New York: Penguin Press, 2008. Fisher, Irving. “The Debt-Deflation Theory of Great Depressions.” Econometrica 1 (1933): 337-57. Fox, Justin. The Myth of the Rational Market: A History of Risk, Reward, and Delusion on

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, see rating agencies; specific ratings recovery and restructuring of short-term unsecured bonded U.S., purchase of see also collateralized debt obligations; leverage; loans; mortgages debt-deflation theory of great depressions debt inflation decoupling deficits budget, see budget, deficits current account, see current account deficit fiscal, see fiscal deficits monetizing of deficit

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Act (1994) homes, see housing Hong Kong Hoover, Herbert households debt of in emerging Europe in Japan House of Representatives, U.S. housing booms bust debt deflation in leverage in price of risk vs. uncertainty in sales of see also mortgages Housing and Economic Recovery Act (2008) housing bubbles Community Reinvestment Act

Expected Returns: An Investor's Guide to Harvesting Market Rewards

by Antti Ilmanen  · 4 Apr 2011  · 1,088pp  · 228,743 words

—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

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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

The Invisible Hands: Top Hedge Fund Traders on Bubbles, Crashes, and Real Money

by Steven Drobny  · 18 Mar 2010  · 537pp  · 144,318 words

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

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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

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upon a long period of unwinding financial excesses. Stock market returns could be terrible for the foreseeable future. If you believe people like Niall Ferguson, debt deflation eliminates all of the gains from the preceding boom, it purges everything. By 1974, we had eliminated all of the real gains from the American

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and everything is highly correlated, is a world that cannot be correctly navigated by the old model. If I am right and this is a debt deflation, it will take 30 years to work through the system, and you do not want to be paying an active management fee for passive execution

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think they get it. I think the death of leverage and its effect on the velocity of money gushing through the economy has initiated a debt deflation that continues to see a contraction in bank loans even in 2009. The same “upside down” logic prevailed in 1979 when Volcker became chairman of

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in the way that the Volcker Fed did in the 1970s? The Fed understands the gravity of the present situation and is fearful of a debt deflation. However, if I were to be super critical, I would contend that they are tackling a Minsky moment (see box) through the lens of Milton

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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

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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

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methods Bear market Bear Stearns bailout government bond leverage change perspective (Bernanke) Beauty contest, concept Benchmark Beneficiaries, payments (impact) Bernanke, Ben actions Bear Stearns perspective debt deflation perspective success/error Beta alpha, contrast correlation portfolio Beta-plus domination Big Oil Black box applications, naivete Black swan Bolton, Anthony Bond option positions, leverage

What Would the Great Economists Do?: How Twelve Brilliant Minds Would Solve Today's Biggest Problems

by Linda Yueh  · 4 Jun 2018  · 453pp  · 117,893 words

, 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

…

. Roosevelt. He was clearly motivated by a desire to fix the American economy and with it restore his own finances. It spurred his work on ‘debt-deflation’, the idea that economies can get trapped in a persistent deflationary spiral where prices fall as the economy stalls since people are not consuming and

…

countries to the brink of deflation. The large build-up in public and private sector debt suggests the global economic situation is ripe for the debt-deflation that Fisher described as the cause of the Great Depression. So, are we at risk of repeating the experiences of the 1930s? And what might

…

. 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

…

led to further distressed selling, rising bankruptcies and even bank runs as loans went bad on banks’ balance sheets. He then described the process of debt-deflation, where attempts to liquidate assets in order to reduce debts become self-defeating, as the ensuing fall in prices raises the real value of debts

…

, and urged the government to restore full employment through deficit-financed government spending. Ben Bernanke and financial accelerators One of the criticisms of Fisher’s debt-deflation explanation is that price changes simply have a redistributive effect between debtors and creditors. Falling prices result in an increase in the real value of

…

crisis, was previously an academic economist and scholar of the Great Depression. In an article published in 1983 he claimed to have rescued the Fisher debt-deflation hypothesis by adding the idea of the credit crunch.17 This would be the missing link between deflation and dramatic declines in nominal incomes. As

…

reduce this net worth. Therefore, an economic downturn can lead to a tightening of financial conditions and less credit availability. The Great Depression and ensuing debt-deflation led to wide-scale distress among borrowers, lowering their ability to pledge collateral. But this also increased the risk to lenders as the average financial

…

where low expectations cause households and businesses to hold back spending, which then delivers the deflation they feared. Escaping a deflationary trap Irving Fisher’s debt-deflation theory about depressions was based on a small sample of just three short periods of deflation, 1837–41, 1873–79 and the Great Depression of

…

in inflated asset prices which had economy-wide implications. The financial instability hypothesis developed by Minsky describes how credit bubbles form,19 while Fisher’s debt-deflation described how they collapse and drag the economy into recession and depression. Minsky believed that, after prolonged prosperity, capitalist economies tend to move from a

…

for mitigating financial instability.’23 It seems that interest in both Fisher and Minsky has been revived by the recent global financial crisis. However, the debt-deflation stage of the financial instability hypothesis so far remains a threat rather than a reality. The global financial crisis Just as the Great Recession offers

…

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

…

in the 1930s called for monetary policy to act as a lender of last resort to stabilize the financial system in order to stop the debt-deflation process and reinstate the credit system. He had highlighted the connections between violent financial crises and fire sales of assets accompanied by a general decline

…

would the global financial crisis have been triggered by something else instead? Fisher would have agreed that a well-regulated financial system would guard against debt-deflation by avoiding large and unsustainable build-ups of debt in the first place. Well-designed regulatory and supervisory powers play a role in preventing deflation

…

-First Annual Meeting of the American Economic Association, pp. 5–21 ________, 1930, The Stock Market Crash – and After, New York: The Macmillan Company ________, 1933, ‘The Debt-Deflation Theory of Great Depressions’, Econometrica, 1(4), pp. 337–57 ________, 1997, The Works of Irving Fisher, 14 volumes, ed. William J. Barber, assisted by Robert

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Economy, New York: Harper, p. 346. 14.  Milton Friedman, 1963, Inflation: Causes and Consequences, Bombay: Asia Publishing House, p. 17. 15.  Irving Fisher, 1933, ‘The Debt-Deflation Theory of Great Depressions’, Econometrica, 1(4), pp. 337–57, at p. 349. 16.  Ibid., p. 344. 17.  Ben Bernanke, 1983, ‘Nonmonetary Effects of the

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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

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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

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, Ella Fisher, George Whitefield Fisher, Herbert Fisher, Irving and the backlash against globalization Booms and Depressions business cycle theory and central banks on combating deflation debt-deflation theory of depression distributive lag model doctoral thesis and the dollar and the Econometric Society and eugenics Fisher equation and gold How to Live imprint

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Theory of Money see also Friedman, Milton; monetarism; Equation of Exchange Rand, Ayn RAND Corporation rate of profit rational expectations theory Reagan, Ronald recession/depression debt-deflation theory of depression Great Depression see Great Depression (1930s) Great Recession (2009) Greece ‘hangover theory’ of Hayek on and Keynes Long Depression (1880s) second recession

The Great Economists: How Their Ideas Can Help Us Today

by Linda Yueh  · 15 Mar 2018  · 374pp  · 113,126 words

, 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

…

. Roosevelt. He was clearly motivated by a desire to fix the American economy and with it restore his own finances. It spurred his work on ‘debt-deflation’, the idea that economies can get trapped in a persistent deflationary spiral where prices fall as the economy stalls since people are not consuming and

…

countries to the brink of deflation. The large build-up in public and private sector debt suggests the global economic situation is ripe for the debt-deflation that Fisher described as the cause of the Great Depression. So, are we at risk of repeating the experiences of the 1930s? And what might

…

. 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

…

led to further distressed selling, rising bankruptcies and even bank runs as loans went bad on banks’ balance sheets. He then described the process of debt-deflation, where attempts to liquidate assets in order to reduce debts become self-defeating, as the ensuing fall in prices raises the real value of debts

…

, and urged the government to restore full employment through deficit-financed government spending. Ben Bernanke and financial accelerators One of the criticisms of Fisher’s debt-deflation explanation is that price changes simply have a redistributive effect between debtors and creditors. Falling prices result in an increase in the real value of

…

crisis, was previously an academic economist and scholar of the Great Depression. In an article published in 1983 he claimed to have rescued the Fisher debt-deflation hypothesis by adding the idea of the credit crunch.17 This would be the missing link between deflation and dramatic declines in nominal incomes. As

…

reduce this net worth. Therefore, an economic downturn can lead to a tightening of financial conditions and less credit availability. The Great Depression and ensuing debt-deflation led to wide-scale distress among borrowers, lowering their ability to pledge collateral. But this also increased the risk to lenders as the average financial

…

where low expectations cause households and businesses to hold back spending, which then delivers the deflation they feared. Escaping a deflationary trap Irving Fisher’s debt-deflation theory about depressions was based on a small sample of just three short periods of deflation, 1837–41, 1873–79 and the Great Depression of

…

in inflated asset prices which had economy-wide implications. The financial instability hypothesis developed by Minsky describes how credit bubbles form,19 while Fisher’s debt-deflation described how they collapse and drag the economy into recession and depression. Minsky believed that, after prolonged prosperity, capitalist economies tend to move from a

…

for mitigating financial instability.’23 It seems that interest in both Fisher and Minsky has been revived by the recent global financial crisis. However, the debt-deflation stage of the financial instability hypothesis so far remains a threat rather than a reality. The global financial crisis Just as the Great Recession offers

…

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

…

in the 1930s called for monetary policy to act as a lender of last resort to stabilize the financial system in order to stop the debt-deflation process and reinstate the credit system. He had highlighted the connections between violent financial crises and fire sales of assets accompanied by a general decline

…

would the global financial crisis have been triggered by something else instead? Fisher would have agreed that a well-regulated financial system would guard against debt-deflation by avoiding large and unsustainable build-ups of debt in the first place. Well-designed regulatory and supervisory powers play a role in preventing deflation

…

Economy, New York: Harper, p. 346. 14. Milton Friedman, 1963, Inflation: Causes and Consequences, Bombay: Asia Publishing House, p. 17. 15. Irving Fisher, 1933, ‘The Debt-Deflation Theory of Great Depressions’, Econometrica, 1(4), pp. 337–57, at p. 349. 16. Ibid., p. 344. 17. Ben Bernanke, 1983, ‘Nonmonetary Effects of the

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-First Annual Meeting of the American Economic Association, pp. 5–21 ———, 1930, The Stock Market Crash – and After, New York: The Macmillan Company ———, 1933, ‘The Debt-Deflation Theory of Great Depressions’, Econometrica, 1(4), pp. 337–57 ———, 1997, The Works of Irving Fisher, 14 volumes, ed. William J. Barber, assisted by Robert

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  · 13 Dec 2019  · 241pp  · 81,805 words

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

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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

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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

Endless Money: The Moral Hazards of Socialism

by William Baker and Addison Wiggin  · 2 Nov 2009  · 444pp  · 151,136 words

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

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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

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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

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a certain angle, has no longer this tendency to return to equilibrium, but, instead, a tendency to depart further from it.1 Fisher, Irving, THE DEBT DEFLATION THEORY OF GREAT DEPRESSIONS, “Econometrica” (March 1933) his chapter focuses upon the tumultuous unraveling of the financial market that occurred mostly in 2008, and continued

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will. In 1933 Irving Fisher correctly diagnosed the cause of financial meltdowns in his book Booms and Depressions, which was followed by an essay, The Debt Deflation Theory of Great Depressions. In the essay he said: “I have, at present, a strong conviction that these two economic maladies, the debt disease and

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, “The Great Depression in Irving Fisher’s Thought,” Universita di Torino (December 2001): 15–16. Chapter 5: Spitting Into the Wind 1. Irving Fisher, “The Debt Deflation Theory of Great Depressions,” Econometrica (March 1933): 339. Notes 389 2. Ben S. Bernanke, Deflation: Making Sure “It” Doesn’t Happen Here, November 21, 2002

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investment in their preferred shares. Although preferred shares are a form of equity, they behave much like unsecured debt. 390 NOTES 15. Irving Fisher, “The Debt Deflation Theory of Great Depressions,” Econometrica (March 1933): 341. 16. Kris Hollington, “Lost in Space,” Fortean Times, July 2008, http://www. forteantimes.com/features/articles/1302

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–290 secular society, 281–285 See also Moral hazard; Self-indulgence Cuneo, Jonathan W., 326–327 “Curveball,” 363 Damn Yankees, 303 Dawes Plan, 62 The Debt Deflation Theory of Great Depressions (Fisher), 131 Deflation: Making Sure “It” Doesn’t Happen Here (Bernanke), 117 Democracy Alliance, 185 Derivatives, 22. See also Alpha, fake

When the Money Runs Out: The End of Western Affluence

by Stephen D. King  · 17 Jun 2013  · 324pp  · 90,253 words

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

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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

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), (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

Money and Government: The Past and Future of Economics

by Robert Skidelsky  · 13 Nov 2018

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

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In FED We Trust: Ben Bernanke's War on the Great Panic

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