In the ending parenthetical, it sounds like you’re saying that I’m overapplying the term “debt crisis” compared to “standard recession” because what-you-would-call-a-standard-recession is caused by a quick decline in inflation, whereas what-you-would-call-a-debt-crisis is merely sparked by or correlated with a quick decline in inflation and is sometimes inflationary. Is that a correct paraphrase?
I will think about that claim more, but for now your frame seems very compatible with mine to me. My current reconciliation would say that your frame is more elegant for describing how the liquidity crunch works (just like a short squeeze on cash once people start bidding it up as they trade in debt, with an emphasis on the primacy of other actors’ reactions), but that it doesn’t really capture how you get to that vulnerable point, which is usually not by huge inflation moves but via the debt/credit cycle and some bad debts that take a bunch of cash out of the economy at once.
That paraphrase is mostly good. I’m trying to separate monetary phenomena, which are the main problem in recessions, from reckless debt levels, which are the main contributor to government debt crises.
Yes, my explanation is mostly compatible with yours.
I didn’t try to explain how a system becomes vulnerable. I think that happens via recency bias causing misjudgments, plus competitive pressures that Romeo mentions.
This is a great frame, thanks.
In the ending parenthetical, it sounds like you’re saying that I’m overapplying the term “debt crisis” compared to “standard recession” because what-you-would-call-a-standard-recession is caused by a quick decline in inflation, whereas what-you-would-call-a-debt-crisis is merely sparked by or correlated with a quick decline in inflation and is sometimes inflationary. Is that a correct paraphrase?
I will think about that claim more, but for now your frame seems very compatible with mine to me. My current reconciliation would say that your frame is more elegant for describing how the liquidity crunch works (just like a short squeeze on cash once people start bidding it up as they trade in debt, with an emphasis on the primacy of other actors’ reactions), but that it doesn’t really capture how you get to that vulnerable point, which is usually not by huge inflation moves but via the debt/credit cycle and some bad debts that take a bunch of cash out of the economy at once.
That paraphrase is mostly good. I’m trying to separate monetary phenomena, which are the main problem in recessions, from reckless debt levels, which are the main contributor to government debt crises.
Yes, my explanation is mostly compatible with yours.
I didn’t try to explain how a system becomes vulnerable. I think that happens via recency bias causing misjudgments, plus competitive pressures that Romeo mentions.