German policymakers don’t understand debt deflation

Editor's note: this post was originally for Credit Writedowns Pro subscribers when written. But it has been made freely available due to an important reference later on the free site here.
Debt deflation is taking hold in Europe. We have seen the crash in Greece's economy unfold over the last two years. And now we are witnessing similar things in Spain. As Marshall Auerback puts it, Spain is the New Greece. But now come signs that Italy too is beginning its debt deflationary spiral. According to the Italian statistical office, Italy's budget deficit rose to 8 percent of gross domestic product (GDP) in the first quarter. As it was 7 percent for the same period a year earlier, it is clear that Italy's fiscal situation is worsening. These were the worst results since 2009.

But German poli...


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