Financial Instability and Debt Deflation
Most of Steve Keen's recent work focuses on modeling Hyman Minsky's financial instability hypothesis and Irving Fisher's debt deflation. The hypothesis predicts that an overly large debt to GDP ratio can cause deflation and depression. Here, the falling of the price level results in a continually rising real quantity of outstanding debt. Moreover, the continued deleveraging of outstanding debts increases the rate of deflation. Thus, debt and deflation act on and react to one another, resulting in a debt-deflation spiral. The outcome is a depression. Steve Keen argues that the current global economic crisis is the result of too much debt.
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Famous quotes containing the words financial, instability and/or debt:
“For the merchant, even honesty is a financial speculation.”
—Charles Baudelaire (1821–1867)
“Not only does the wind of accidents stir me according to its blowing, but I am also stirred and troubled by the instability of my attitude.”
—Michel de Montaigne (1533–1592)
“Good government cannot be found on the bargain-counter. We have seen samples of bargain-counter government in the past when low tax rates were secured by increasing the bonded debt for current expenses or refusing to keep our institutions up to the standard in repairs, extensions, equipment, and accommodations. I refuse, and the Republican Party refuses, to endorse that method of sham and shoddy economy.”
—Calvin Coolidge (1872–1933)