Total Debt Is Deflating



Comments:

As we have argued before, deflationary indicators are showing up in many places.
The total amount of consumer debt is now falling. From an Austrian perspective, money supply amounts to all forms of cash and credit. Therefore, this is a highly deflationary indicator that would take enormous effort by the Fed and other Central Banks to overcome.
In this blogger's view, deflation is the manner in which an economy is repaired so that it may be revived as the market is allowed to reallocate capital efficiently.
It does appear that Central Banks will continue an attempt to fight this medicine. Whether they can overcome deflation by money printing resulting in mass inflation remains to be seen.

Comments

  1. The problem with your argument is it fails to account for the multiplier effect of deposits in a fractional reserve system. When banks take large write offs to the point that their capital is depleted or disappears entirely, the whole process is thrown into reverse with tremendous force. Presently this is happening among many banks to the point of becoming systemic. Soon cities and states will follow, and finally we will have sovereign states begin to default. The bad debt must be written off for the economy to heal.

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