"At any given time there are some people who would like to borrow more at current interest rates, but are constrained by norms about how much debt is too much."
credit is rationed by default orderings
" If these norms are loosened, they will borrow more — which is in fact what happened between around 1980 and 2007"
as
"deregulation, financial innovations nobody understood, and general complacency led to a broad willingness to accept higher leverage."
okay
but ...
".. What induced the necessary lending?"
" Higher real interest rates, which encouraged “patient” economic agents to spend less than their incomes while the impatient spent more."
oh my God !!! what nonsense
the credit expansion was t5he "costless" product of monewtary base expansioin and change in leverage/cash holdings/free reserve ratios etc ...right ? pk ? ...come in PK ...
"then something makes people remember the dangers of debt"
sometimes or eventually ?
" and leveraging gives way to deleveraging"
"You might think that the process would be symmetric: debtors pay down their debt, while creditors are correspondingly induced to spend more by low real interest rates. And it would be symmetric if the shock were small enough. In fact, however, the deleveraging shock has been so large that we’re hard up against the zero lower bound; interest rates can’t go low enough. And so we have a persistent excess of desired saving over desired investment, which is to say persistently inadequate demand, which is to say a depression."
"this is in a fundamental sense a market failure: there is a price mechanism, the real interest rate, that because of the zero lower bound can’t do its job under certain circumstances, namely the circumstances we face now."
"What to do? One answer is fiscal policy: let governments temporarily run big enough deficits to maintain more or less full employment, while the private sector repairs its balance sheets. "
"The other answer is unconventional monetary policy to get around the problem of the zero lower bound: maybe unconventional asset purchases, but the obvious answer is to try to create expected inflation, so as to reduce real rates."
