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Our monetary system faces a paradox. Today, the system relies on more debt being issued continually to keep markets functioning. And yet, the more debt created the more growth slows AND deflation prevails. The dollar shortage is a feature of the debt too.
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"It is the combination of both—the debt disease coming first, then precipitating the dollar disease—which works the greatest havoc."
-Irving Fisher
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https://fraser.stlouisfed.org/files/docs/meltzer/fisdeb33.pdf
-Irving Fisher
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https://fraser.stlouisfed.org/files/docs/meltzer/fisdeb33.pdf
Debt is a factor of production. Once that factor is overused, growth slows and deflationary forces prevail.
The "debt disease" is a disease all its own. Persistent slow growth, low rates, and small margins for profit.
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The "debt disease" is a disease all its own. Persistent slow growth, low rates, and small margins for profit.
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However, at some point, the "dollar disease" kicks in. A dollar shortage is inevitable with near zero interest and poor growth. One day, the music stops, and the dollar's value spikes up.
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"The two diseases act and react on each other...Just as a bad cold leads to pneumonia, so over-indebtedness leads to deflation...And, vice versa, deflation caused by the debt reacts on the debt. "
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"Each dollar of debt still unpaid becomes a bigger dollar, and if the over-indebtedness with which we started was great enough, the liquidation of debts cannot keep up with the fall of prices which it causes..."
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"In that case, the liquidation defeats itself. While it diminishes the number of dollars owed, it may not do so as fast as it increases the value of each dollar owed."
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"Then, the very effort of individuals to lessen their burden of debts increases it, because of the mass effect of the stampede to liquidate in swelling each dollar owed."
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"Then we have the great paradox which, I submit, is the chief secret of most, if not all, great depressions: The more the debtors pay, the more they owe. The more the economic boat tips, the more it tends to tip. It is not tending to right itself, but is capsizing."
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