On optimism in the face of deflationary crisis responses, part 2

This is a brief follow-on to the last post on whether we should be optimistic, in particular now that the US housing market is improving. If you think about it, the problem now is that all debtors - public and private - are taking the deflationary route to reducing debt in attempting to increase net savings. This is the hallmark of global deflationary crises - deflationary crisis responses are locked in, guaranteed. That's what I meant by constrained policy responses.

What we know is that, just as in many other downturns before, private sector debtors have suffered from lost income, jobs, and revenue as a business cycle turned down. The natural response to this loss of income, when one has debt to pay off, is to pull in one's horns and reduce new debt and work off old debt - to save more....


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