The conventional narrative describing the Great Depression goes something like this. The US Stock Market crashed in October 1929. De-leveraging from the colossal debt bubble of the late 1920s, combined with falling agricultural prices, led to a bank panic. The Federal Reserve allowed banks to go under rather than jeopardize its own credit worth, the […]
Monthly Archives: October 2008
First taste of the New Generation of financial crisis
Today’s crisis is the West’s first taste of a new generation of financial crisis, already known to the developing world from its 1997-98 crises. De-leveraging is the liquidation of exuberance. When fundamentals have long since belied the optimistic notions underlying exuberance, debt contraction is in store. To be sure, East Asia’s economy by 1997 had […]
Asset deflation and “debt deflation”
“[I]n the great booms and depressions, each of the [most popular explanations] has played a subordinate role as compared with two dominant factors, namely over-indebtedness to start with and deflation following soon after…. In short, the big bad actors are debt disturbances and price-level disturbances.” Irving Fisher, “The Debt-Deflation Theory of Great Depressions”, Econometrica (October 1933), 341. […]