Debt deflation

Irving Fisher's debt-deflation theory: its relevance to current conditions -- Wolfson 20 (3): 315 -- Cambridge Journal of Economics

he essence of Irving Fisher's debt-deflation theory was an interactive process whereby falling commodity prices increased the debt burden of borrowers. Despite the absence of falling prices today, this paper argues that a modified debt-deflation process is still possible. As the 1987 stock market crash demonstrates, the modern debt-deflation process encompasses falling asset prices, debt repayment difficulties, a reluctance to lend, a financial crisis, the impact on the banks, and the inter-dependency of the financial system. Recent debt-deflations have been aborted by lender-of-last-resort intervention and government support of the financial system

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