> Here's my little summary of Fisher's debt deflation process, from p.
> 157 of Wall Street:
>
> >In a classic paper, Irving Fisher (1933) argued that financial
> >involvement made all the difference between routine downturns (not
> >yet called recessions) and big-time collapses like 1873 and 1929.
> >Typically, such a collapse followed upon a credit-powered boom,
> >which left businesses excessively debt-burdened, unable to cope with
> >an economic slowdown. The process, which he labeled a debt
> >deflation, was fairly simple, and makes great intuitive sense, but
> >it was an argument largely forgotten by mainstream economics in the
> >years after World War II. A mild slowdown, caused perhaps by some
> >shock to confidence, leaves debtors unable to meet their obligations
> >out of current cash flows. To satisfy their creditors, they
> >liquidate assets, which depresses the prices of real goods. The
> >general deflation in prices makes their current production
> >unprofitable, since cost structures were predicated on older, higher
> >sales prices, at the same time it increases the real value of their
> >debt burden. So firms cut back on production, employment falls and
> >demand falls with it, profits turn into losses, the debt burdens
> >further increase, net worths sink into negative territory - and so
> >on into perdition. Fisher argued that there was nothing on the
> >horizon to stop the process from continuing in 1933 - until
> >Roosevelt took office and declared a bank holiday on March 4. This
> >state intervention broke the destructive pattern; otherwise, claimed
> >Fisher, the collapse would have taken out whole new realms of the
> >economy, leading inevitably to the bankruptcy of the U.S.
> >government. The implication, then, is that such deflations are
> >impossible today, because governments will intervene at a far
> >earlier stage (Minsky 1982b).
>