Long Term debt Cycle


lenders freely extend credit ← people are just focused on what's been happening lately
they feel income rising
asset value rising ← buy by added borrowed money
### bubble


$$debt\;burden =  debt \div income$$
dept burden stay manageable when income rise with debt


at some point
dept riser more faster than income → forcing people to cut back spending → income down → vicious circle (faster than rise)
- 1989 japan
- 1929 united
- 2010 spain and italy


### deleveraging means debt size = income size

### so economy begins deleveraging
people cut spend → incomes fall, credit disappear, asset prices drop, bank squeezed, social tensions  rise



low income → credit dries up → flood of forced to sell asset floods → lower price → low value of collateral → even less credit


### lowering interest
- lowering interest rates doesn't work because already low so the stimulation end
> ![](https://www.notion.so/image/https%3A%2F%2Fs3-us-west-2.amazonaws.com%2Fsecure.notion-static.com%2F70f2dad3-aed5-49ec-a043-ac7c3c0ffef7%2Ffed-funds-rate-historical-chart-2020-03-15-macrotrends.png?table=block&id=b321a20b-b6a3-4582-ade7-f26456edf3f8&cache=v2)
deleveraging - borrowers dept burdens too big so not relieved by stimulation
stop borrowing  - no more credit
so we need to come down debt


## Solution 
1. cut spending - even government, business - usually first (austerity - 긴축)
> - but cause income to fall
> - incomes fall faster than dept fall → more burden 1
> - can cause deflation and painful 
> - business cut spending → less job and higher unemployment → budget deficits(적자) explode → raise tax of rich
>> - unemployment  → lower income → lower tax
>> - unemployment → increase spending for unemployed financial support
2. reduce debt - defaults and restructuring
> - borrowers to not repay the bank then people get nervous that band won't be repay withdrawal
> - bank get squeezed (유동성 압박) **default **on their dept
> - this economic contraction is depression (asset lost their value - disappear)
> - so do not wont default → dept restructuring → rise burden 2
>> - pay back less → deflation
>> - less interest rate
3. redistribute wealth from have to have-not
> have and have not conflict can lead to political change
> government budget deficits(적자) explode → raise tax of rich
4. central bank print new money
> - inflationary and stimulative
> - central bank print and uses it to buy financial assets(like stock) and government bonds (국채) → raise asset price (for has asset)
> - central government can buy goods and services - increase income
> - it make bigger government debt however lower global debt
> - **replace decrease of credit**
> - easy but do not overdose - **just match with dept increase**
> 
### policymaker need to balance 4 way
- deflationary way and inflationary way balance - stability → beautiful deleveraging
- debt lower faster then income lower
- real economic growth minus
- and then after that make income growth bigger then debt growth  


about 10 years to be normal - lost decade





