Long Term debt Cycle

lenders freely extend credit ← people are just focused on what's been happening lately

they feel income rising

asset value rising ← buy by added borrowed money

bubble

debt\;burden = debt \div income

dept burden stay manageable when income rise with debt

at some point

dept riser more faster than income → forcing people to cut back spending → income down → vicious circle (faster than rise)

1989 japan

1929 united

2010 spain and italy

deleveraging means debt size = income size

so economy begins deleveraging

people cut spend → incomes fall, credit disappear, asset prices drop, bank squeezed, social tensions rise

low income → credit dries up → flood of forced to sell asset floods → lower price → low value of collateral → even less credit

lowering interest

lowering interest rates doesn't work because already low so the stimulation end

deleveraging - borrowers dept burdens too big so not relieved by stimulation

stop borrowing - no more credit

so we need to come down debt

Solution

cut spending - even government, business - usually first (austerity - 긴축)

but cause income to fall

incomes fall faster than dept fall → more burden 1

can cause deflation and painful

business cut spending → less job and higher unemployment → budget deficits(적자) explode → raise tax of rich

unemployment → lower income → lower tax
unemployment → increase spending for unemployed financial support

reduce debt - defaults and restructuring

borrowers to not repay the bank then people get nervous that band won't be repay withdrawal

bank get squeezed (유동성 압박) default on their dept

this economic contraction is depression (asset lost their value - disappear)

so do not wont default → dept restructuring → rise burden 2

pay back less → deflation
less interest rate

redistribute wealth from have to have-not

have and have not conflict can lead to political change

government budget deficits(적자) explode → raise tax of rich

central bank print new money

inflationary and stimulative

central bank print and uses it to buy financial assets(like stock) and government bonds (국채) → raise asset price (for has asset)

central government can buy goods and services - increase income

it make bigger government debt however lower global debt

replace decrease of credit

easy but do not overdose - just match with dept increase

policymaker need to balance 4 way

deflationary way and inflationary way balance - stability → beautiful deleveraging

debt lower faster then income lower

real economic growth minus

and then after that make income growth bigger then debt growth

about 10 years to be normal - lost decade