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The economies of deleveraging: The aftermath of financialization

  • Thomas I. Palley

    ()

    (New America Foundation, Wshington DC.)

This paper provides a simple model of deleveraging that surfaces the contradictions inherent in neoliberal financialization and explains the pattern of US business cycles over the past thirty years. Deleveraging involves a two step correction. The first step is when a borrowing boom ends. The second step is when agents increase saving and re-pay debt. Borrowing accelerates economic activity as consumers spend. When borrowing stops, the economy slows. Moreover, the economy is further slowed by accumulated debt burdens. With deleveraging, households increase saving and re-pay debt which deepens the economic slowdown. Repayment reduces debt, helping economic activity eventually to recover.

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File URL: http://www.elgaronline.com/view/journals/ejeep/7-2/ejeep.2010.02.13.xml
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Article provided by Edward Elgar Publishing in its journal Intervention.

Volume (Year): 7 (2010)
Issue (Month): 2 ()
Pages: 401-413

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Handle: RePEc:elg:ejeepi:v:7:y:2010:i:2:p401-413
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  1. Marshall Auerback & L. Randall Wray, 2010. "Toward True Health Care Reform: More Care, Less Insurance," Economics Public Policy Brief Archive ppb_110, Levy Economics Institute.
  2. Yeva Nersisyan & L. Randall Wray, 2010. "The Trouble with Pensions: Toward an Alternative Public Policy to Support Retirement," Economics Public Policy Brief Archive ppb_109, Levy Economics Institute.
  3. L. Randall Wray, 2009. "The rise and fall of money manager capitalism: a Minskian approach," Cambridge Journal of Economics, Oxford University Press, vol. 33(4), pages 807-828, July.
  4. Eric Tymoigne & L. Randall Wray, 2009. "It Isn't Working: Time for More Radical Policies," Economics Public Policy Brief Archive ppb_105, Levy Economics Institute.
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