Is Delevaraging Really Bad For The Economy? (02/18/2016)

We are all trained to think that a falling stock market and deleveraging of debt is the end of the world to be feared at all costs. Therefore we are told that bank bailouts and misery for the masses necessary, but are they?

Could it be that deleveraging actually is a process that once is complete lays the pathway to a true economic boom, which is something we have not seen in over two decades now?


The economic pundits have stressed more and more that this crisis is special because it involves "deleveraging," and for that reason isn't a run-of-the-mill recession. Because households and corporations are collectively trying to reduce their net indebtedness, it is allegedly up to the government to run massive budget deficits in order to prop up aggregate spending.


Deleveraging — a fancy word for paying down debt — is a painful process, but necessary given the extravagant living of the boom period. Rather than fight it, the government and Fed should get out of the way. They certainly shouldn't implement policies — such as zero-percent interest rates and trillion-dollar deficits — that will only build up the problem once again.

Full story here.

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