For most commentators, a major threat to the US economy is that banks are curtailing their expansion of credit in order to improve their net worth and hence solvency. This, it is argued, sets in motion a vicious process that leads to asset-price deflation, which for a given value of liabilities actually weakens banks’ net worth and makes them less solvent. In fact, by adjusting their balance sheets to the facts of reality, banks actually set up a process that permits sustained economic growth. FULL ARTICLE
Source link: http://archive.mises.org/8413/is-deleveraging-bad-for-the-economy/
Is Deleveraging Bad for the Economy?
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