Ray Dalio - A Template for Understanding Big Debt Crises (Audiobook)

A Model for Understanding the Great Debt Crisis by Ray Dalio introduction I bring this up on the 10th anniversary of the 2008 financial crisis to offer the perspective of an investor who weathered that crisis well because he had developed a model for

understanding

how all that crisis work . I'm sharing that

template

here in hopes of reducing the likelihood of future

debt

crises

and helping you better manage yourself as an investor. My perspective is different from that of most economists and policymakers because I bet on the economic changes of other markets rather than reflecting them, which forces me to focus on the values ​​and related flows that drive the movement of capital and that in turn drive these cycles in the process of trying to navigate them.

I discovered that there is nothing like the pain of being wrong or the pleasure of being right. as a global democracy to provide practical lessons on economics not available in textbooks after being repeatedly affected by events it had never experienced before. I dreamed of going beyond my own personal experiences to examine all the great economic and market movements in history and make them in a way that turned them into virtual experiences, for example, so that they appeared to me as if I were experiencing them in reality. real time, that way I would have placed my bets on the market as if I only knew what happened up to that point.

I did this by starting the historical cases chronologically and experiencing them in great detail day by day and month by month. This gave me a much broader and deeper perspective than if I had limited my perspective to my own direct experiences through my own experience. I went through the iteration. and eventual collapse of the Bretton Woods global monetary system in 1966 1971 the inflationary bubble of the 1970s and its burst in 1978 82 the major American rational depression of the 1980s the Japanese bubble of the late 1980s and its burst in 1988 91 the global

debt

bubbles that led to the bursting of the tech bubble in 2000 and the increased leverage of 2008 and, through my history studies, I experienced the collapse of the Roman Empire in the 5th century, the restructuring of the United States debt in 1789, the last republic of Germany in the 1920s, the global Great Depression and the neighborhood that engulfed many countries in 1930 45 .

Many other

crises

. My curiosity and need to know how these things work to survive in the future led me to try to understand the cause-effect relationships behind them. I discovered that by examining many cases of each type of economic phenomenon, economic cycles under taking advantage of x', for example, and plotting the averages of each, I could better visualize by examining the cause-effect relationship of each type, allowing me Create

template

s or catechol magnates of each type, for example, the news cycle of your categories, your catapult, the great debt cycle. catapults deflationary leverage your cat over inflationary leverage tea etc. then by looking at the differences of each case within the type, in the example, each economic cycle in the relationships that we can call is a cycle, I was able to see what caused the differences by putting these templates together, I got simplify the 18.

Understanding all of these cases, instead of seeing many individual things happen, so fewer things happen over and over again, like an experienced doctor who sees each case of a certain type of disease as if it were just one more of the ones he researched and developed. This template, with the help of many great partners at Bridgewater Associates, this template allowed us to better prepare for storms that had never happened to us before, just like the 100-year floods or plugs of a study that allowed us to calm down more easily and be Better prepared. We use our

understanding

.

To build a computer decision-making system that laid out in detail exactly how it would react to virtually every possible event, this approach helped us enormously; for example, eight years before the 2008 financial crisis, we built a Depression Gorge that was programmed to respond to 50 developments from 2007 2008 that haven't happened since 1932, this allowed us to do very well when most others did poorly, while I once preached Waters' detailed decision-making system in This studio. I'll share next, my template for the Last year catapulted the big debt cycle, so three iconic case studies examined the United States in detail. in 2007-2011, including two Great Recessions in the US in 1928 and 37, covering a deflationary depression, and Germany in 1918, 24 examining an inflationary depression and 3, a compendium of 48 case studies including the most of the great debt crisis that occurred in the last 100 years, I guarantee that if you take the trouble to understand each of these three perspectives, you will see the great debt crisis very differently than it did for me, watching the economy and markets or almost anything else on a day-to-day basis, it's like being in an evolving blizzard with millions of pieces.

The amount of information that comes to me and that I have to synthesize and react well to see what I mean by being in the snowstorm first is to see what is happening in the most synthesized forms, compare what is transmitted in the first part , the most synthesized version of the template with Part C, and then like that. Granular version in the third part, the version that shows 248 cases in turret form. If you do, you will notice how all of these cases happen in essentially the same way as described in your catapult case and, at the same time, you will notice their differences, which will lead you to reflect.

Why do these differences exist and how to explain them, which will improve your understanding that way? When the next crisis comes, you will be better prepared to deal with it. I generally appreciate that different people have different perspectives, the mind is only one and that by putting our perspectives up for debate we can all advance our understanding. I am sharing this study today right in the archetypal cycle of great debt. How I think about credit and debt, since we are going to use credit deterrence and that is a lie. I would like to start with a pet, what they are and how they work.

Credit is the granting of purchasing power. This volume of power is printed in exchange for a promise to pay, which is a debt that clearly provides the ability to make purchases by providing credits. Peace in itself is a good thing and not providing the power to buy good things can be a bad thing, for example if too little credit is provided for development then there is very little development which is bad the problem arises when there is a disability. pay, to put it another way, the question of whether quick loans are death, growth is good or bad depends on what that credit produces and how depth is paid for, for example, how depth is served, almost by definition, to the Financially responsible people don't like to have a lot of depth, I understand that perspective well because they shared it throughout my life, even when I had no money.

I preferred saving to borrowing because I felt the advantages of depth using the disadvantages of tortex, which is a perspective I guess I got from my Dad I identify with people who believe that getting into a little debt is better, it didn't take much, but with the Over time I learned that that is not necessarily true, especially for society as a whole, as opposed to individuals, because those who From my experiences in my research I have learned that too little growth in credit debt can create economic problems just as bad or worse like having too much with the coast in the form of distant debts.

Lost opportunities broadly because credit creates both purchasing power and depth. Whether or not more credit is desirable depends on whether the borrowed money is used productively enough to generate sufficient income to service the debt, if that, of course, the resources will have been well allocated in both cases. the lender and the borrower will benefit financially if that does not grant the borrowers and lenders once satisfied and there is a good chance that the resources have currently been allocated when evaluating this for society as a whole, it should be considered that the secondary in the direct economy is In addition to the more primary economy of tires, for example, sometimes not enough monetary credit is provided for obviously profitable things like educating our children well, which would make them more productive and at the same time reduce crime and the cost of incarceration or replacing inefficient infrastructure due to fiscal policy.

Conservatism that insists that borrowing to do such things is bad for society, which is not true. I want to be clear that credit debt that produces enough financial returns to pay for itself is a good thing, but sometimes the trade-offs are harder to see if you're on fire. the standards are so strict that they require almost absolute certainty that they will be paid, which may lead to fewer debt problems but some debt development, legal development if the lining standards are more flexible, that could lead to further development but could also create serious downward debt problems. the path that erases profit let's look at this and some other common questions about debt and debt cycles how costly bad debt is relative to not having to spend what the debt is financing let's assume that you, as a policy maker , just build a subway system that costs a billion, you finance it with what you expect to be paid with an income, but the economy turns out to be much worse than you expect, the only health of the expected income that reaches deep has to be scored by 50% Does that mean I shouldn't have built a subway?

To rephrase the question is whether a subway system is worth 500 million more than initially budgeted or whether it is annually worth about two percent more per year than budgeted, assuming. The metro system has a useful life of 25 years. Look at it this way, you may well evaluate that having the subway system on that coast is much better than not having the subway system to give you an idea of ​​what that could mean for an economy as a whole, the losses from really bad debts have occurred when approximately forty percent of the value of the loans could not be repaid;

Those bad loans account for about twenty percent of all outstanding loans, so losses equal about 8% of the total depth total debt, in turn, equals about 200 percent of income , for example, GDP, so the deficit is approximately equal to 16 percent of GDP if that coast is socialized by simply boring society as a whole, a fiscal or monetary policy is distributed. 15 years would be equivalent to exceeding one percent annually, which is tolerable, of course, if it did not extend along the coast it would be intolerable, which is why I affirm that the negative risks of having a significant depth depend a lot on the will and the capacity.

I have seen this in every case I have looked at and I have studied whether policymakers can do this depends on two factors: one, whether it detects that it is denominated in the currency they control and whether it has influence now on how creditors behave and debtors to each other our inevitable debt crisis throughout history only a few well-disciplined countries have avoided that crisis that is because loans are never made perfectly and are often done poorly to have the cyclical effects that the psychology of people produces Bubbles and pops, while policymakers generally try to do things right, most of the time they win on the side of losing with credit because the mere term rewards faster growth seems to justify that it is also politically more easy to allow easy credit, for example by providing guarantees. make monetary policies more flexible than have restricted credit; that's the main reason we see big debt cycles. those that you would expect if I were talking about astrology, for that reason I want to emphasize that I am talking about nothing more than a series of neurologically dreamlike events that require patterns in a market-based economy, expansions and contractions in credit that drive economic cycles that They are core for perfectly logical reasons, although the patterns are similar, the sequences are not predestined to repeat in exactly the same way or take exactly the same amount of time to express these complicated matters in very simple terms, you create a cycle practically every time you borrow it. money while transporting something means spending more than you earn, you're not just borrowing from your lender you're borrowing from your future self, you're essentially creating a time in the future where you'll need to spend less than you earn in order to be able to Paying Karen Barbie to spend more than she earns and then having to spend less than she earns very quickly becomesresembles a cycle: this is our free foreign national economy, as it is for an individual who borrows money, it says the predictable mechanical series of events that are set in motion if you By understanding the game of Monopoly, you can understand quite well how Economy-wide credit cycles work at the beginning of the game, people have a lot of cash and only a few properties, so they pay to convert your cash into properties.

I said that the game progresses and players acquire more and more houses and hotels. More and more cash is needed to pay the rents that are charged when you land on a property that has many. Some players are forced to sell their property at discounted prices to raise cash. At the beginning of the game, proxy is king and later in the game cash is king. Those who play better understand how to maintain the right mix of property and cash as the game progresses. Now let's imagine how this monopoly game would work if we allowed the bank. making loans and taking that assumes that players could borrow money to buy properties and instead of keeping their cash doing nothing, they would put it into deficit in the bank to earn interest, which in turn would provide the bank with more money to lend .

Let's also imagine that players in this game could buy and sell property from each other on credit, for example, promising to pay back the money with interest at a later date. If monopolies were played this way, it would provide a near-perfect model for the way our economy operates, the amount of debt, best spending and hotels would grow rapidly to multiples of the amount of money existing in the future. The debtors who own them will be short of the cash they need to pay their rents and utilities. In its attempt, the bank will also get into trouble as its depositors' increasing need for cash will cause them to withdraw it even as more and more depositors are falling behind on their payments if nothing is done to ensure that both the banks and Doctors will go bankrupt and the economy will contract over time as these cycles of expansion and contraction occur repeatedly the conditions are created for a major long-term debt crisis loans naturally create self-reinforcing upward movements that will eventually they reverse to create self-reinforcing downward moves that must be reversed tours during bullish swings loans support spending and investment, which in turn supports income and asset prices rising income and asset prices supports borrowing and spending on goods and financial assets borrowing essentially lived expenses and income above dodging the productivity growth of the economy system near the peak of the upward cycle lending is based on expectation that the main road mentioned above will continue indefinitely but of course that cannot happen, eventually revenues will fall below the cost of borrowing, economies whose growth is significantly supported by debt, the best construction of investments based on Real estate and infrastructure are particularly susceptible to large cyclical swings due to rapid construction rates; those long-lived assets are not sustainable if better housing is needed. and if you build it, incremental levies have built more homes, it naturally decreases as housing spending slows, so those homes impact the road, let's say you've been spending ten million dollars a year to build a building of offices, hiring fine steel and concrete workers, etc. etc., when the building is completed, spending will drop to zero dollars per year, as will the demand for workers and construction materials.

From then on, revenue growth in depth of service will depend on other demands. This type of psychopath is stronger. due to debt the best investment in real estate and infrastructure spending is a drop in biodiversity driven by UTEP challenged the slowdown in demand is very typical of emerging economies because they have a lot to build forever contributing to the cyclical nature of economies of emerging countries there are changes in competitiveness due to changes in their income, they generally have very cheap labor and bed infrastructure, so they build infrastructure and have an experienced boom. They experienced an increase in income, but the growth rate they need for exports naturally slows down as their income levels increase and their wage competitiveness relative to other countries decreases.

There are many examples of these types of cycles, e.g. Japan's experience over the last 70 years in the bubble unrealistic expectations and reckless lending result in this critical mass of loan defaults at one time or another this becomes evident bankers and central bankers and the bubble begins to deflate A classic warning sign that a bubble is coming is when an increasing amount of money is being buried. Sub-meity service payments, which of course is compounded by increasing debt weakness when money and credit growth are restricted or rail standards are raised. credit growth rates are becoming sluggish and deeper servicing problems are emerging at this point the peak of the upward phase of the debt cycle is within reach realizing that credit growth is the rapid Stander's decision to contain the central bank's tidal monetary policy that often accelerates into decline, although it would have happened a little later in any case, where the costs of that service become larger and the amount that is can bury to finally spend the upward cycles refers only to new landings, but the pressure inducers to make your paint increases the clearer that depth becomes Struggle increases the fewer new loans there is a slowdown in spending and investment that results In a means-tested slowdown further and asset prices decline when borrowers are unable to meet their debt service obligations to credit institutions; those credit institutions are unable to link their obligations to their own creditors;

Policymakers should handle this by first dealing with the lending institution; The most extreme pressures are experienced by lenders; are the most leveraged and have the most concentrated exposure to failed borrowers; These lenders represent the greatest risks of creating knock-on effects for creditworthy buyers throughout the economy generally lie with banks, but as credit systems have become more dynamic, a set of lenders has emerged, such as insurance companies, stockbrokers, the rest non-banks and even Space Purpose Vehicles The two main long-term problems that arise from these types of debt cycles are: one, the losses that arise from the expectation that payments of services are not made when promised ground service payments cannot be made, which may lead to smaller periods. payments or when noting the value of technologies, an example of agreeing to accept the lesson was if you expected an annual payment for technological services of 4% and accounting for 2% or 0%, there is that shortfall for each year.

We are asking if the debt is a market city, the loss that year would be much greater in the example, 50% say that the reduction in loans and spending was financed in the future even after a debt crisis, for It is unlikely that entities that took on so much debt will be able to generate the same level of spending as they did before the crisis, which has implications that must be considered. Ken Loach's debt crisis must be managed so that they are not problems. Sometimes these cycles are moderate like monks and sometimes Terry screams and crashes. In this study we examine what are extreme examples, all those that over the past 100 years produced declines in real GDP of more than 3% based on my examinations of them and the ways in which the leverage is available to policymakers.

I think it's possible. They need to be managed well by policymakers in almost all cases where doubts are expressed in countries about the currency, that is, the flexibility that policymakers have allows them to distribute the harmful consequences in such a way that the problems debt aren't really big problems in most cases. The real and terrible economic problems of the debt crisis occurred before policymakers took steps to extend the line, including the largest debt crisis in history, for example, the Great Depression of the 1930s, which we are gutting once the correct adjustments were made for my examination of these cases.

The greatest risks come not from the debts themselves, nor from the inability of policymakers to do the right thing due to a lack of knowledge or authority, but from the political consequences of making adjustments in the hearts and people in the process of helping others. Of them want to help reduce these risks, they are outside the freedom, Tony has saved, I want to reiterate that when debts are denominated in foreign currencies instead of foreign currency, it is much more difficult for countries' policy makers Accepting the kinds of things that spread debt problems and seeing the fact that the debt crisis can be managed well does not mean that they are not extremely costly for some people, the pizza to managing the debt crisis well lies in that policymakers know how to use their leverage well and have the authority they need to do so knowing at what rate the peg buttons will have to extend and who will benefit and who will suffer to what extent so that the political and other consequences are acceptable there are four types of levers that policymakers can use to reduce debt and debt service levels relative to the levels of incoming cash flows needed to meet austerity, for example, spending less to deepen restructurings by default three the central bank prints money and makes purchases or provides guarantees for money transfers and credits from those who have more than they need to those who have less, each of its levers has different impacts on the economy, some are inflationary for stimulate growth, an example of bonus learning, while others are deflationary and help reduce the debt burden, for example, heavy defaults, the key to creating a beautiful reduction of leverage in tax revenues is accompanied by rates of acceptable inflation that I explain later, license to seek the appropriate balance between them in this happy scenario, medical income rates decrease at the same time that economic activity and the prices of financial assets gradually improve, which brings with it the nominal . income growth rates above the nominal interest rate, these levers turn on who benefits and who suffers and how long policymakers are in the politically difficult position of having to make those decisions, such as As a result of which they are rarely appreciated, even when handling the debt crisis well.

The template for the IRR catechol washing of ten major cycles. Real GDP of more than 3% in large countries, which is what For clarity, I will call it depression. I divided the affected countries into two groups: one that did not have much of its debt denominated in foreign currency and did not experience inflationary depressions, and those that have a significant amount of its debt denominated in foreign currency. a foreign currency and be experiencing joyous and striking depressions, as there was approximately a 75% correlation between the immense amount of their foreign debts and the amounts of inflation they experienced, which is not surprising, since having many of their debts at Since their depressions are inflationary, it made sense to unite those who have more foreign currency debt with those who have inflationary depressions, typically core debt crises, because the costs of sex and service The central bank can alleviate a specific debt crisis by lowering real and nominal interest rates.

Severe debt crisis, for example depressions, of course, when this is no longer possible. Classically, many cycles from short-term debt, in business cycle examples, to long-term debt. cycle because each short term cyclically high and each short term cyclically is greater than theprevious in 1/8 of the income index statistics until the interest rate reduction to help drive expansion in depth can no longer continue. The graph below shows the debt and debt service burden of principal and interest in the US since 1910. You will see how interest payments remain stable or decline even as debt increases, so the increasing debt service de la Costa is not as large as the horizon debt, this is because the central bank, in this case a Federal Reserve, reduces interest rates to keep the expansion deeper until they can no longer do so because their rate interest rate is zero percent and that happens, leverage begins while the chart gives a good overall picture.

I must make it clear that it is in that proportion in two aspects. One, it doesn't come with differences between the various entities that make up these total numbers, which are very important to understand, so it just shows what it's called that, so it doesn't reflect liabilities like pension and healthcare claims, which are a lot greater. Having this more granular perspective is very important in assessing a country's vulnerabilities for the most part, such questions are beyond the scope of these books. Our examination of the cycle in staff development will focus on the period leading up to the depression, the depression period itself. and the previous leverage period that follows the button with the depression as a therapeutic of the fiscal crisis , statistics reflected in graphs. of the faces were obtained by averaging 21 cases of deflation rejection cycles and 27 cases of inflationary debt cycles starting five years before the bottom of the depression.

I continue for seven years after remarkably long-term debt cycles seemed similar in many ways to short-term ones. long-term debt cycles, except they are more extreme because the technological burdens are greater and the monetary policies that can address them are for the most part less effective. Shorter complete cycles produce shocks, many booms and recessions, while long-term ones produce large booms, and over the last century, the United States has twice gone through a long-term debt crisis, once during the period of the 1990s. 1920s and a Great Depression of the 1930s, and again during the phase of the early two thousand years and the financial crisis train of 2008 in the extent of the short-term debt cycle is limited only by the will of lenders and borrowers to provide and receive credit when credit is readily available there is an economic expansion when credit is not readily available there is a recession the availability of credit is controlled primarily by The central bank can usually get out of a recession by lowering rates to stimulate the cycle again, but over time each button at the top of the cycle ends with more economic activity than the previous cycle, which would have more depth because people press it.

They have an inclination to borrow and spend more instead of repaying debt Their human nature is the result of long periods of time Real debts are collected faster than income This creates the long-term debt cycle during the boom long-term debt cycle lenders give credit freely even as people become more inductive, that is because princes reinforce themselves on the positive side.spending, etc., since everyone is willing To take on more risks, new types of financial intermediaries and new types of financial instruments are quite often developed that are outside the supervision and protection of regulatory authorities, which puts them in a competitively attractive position to offer their returns. more leverage and claims have greater liquidity or other credit risk with borrowers with abundant credit, strict police and more than is sustainable, given the appearance of being Spurs' insider lenders who are enjoying the good times, are more accommodating than which they should be, but that can continue. to increase faster than money an income that is necessary to care for them so they are headed towards a technological problem one of the limits of that growth related to the highest income achieved the process works in reverse since prices fall doctors have problems When paying off their debts, investors become scared and cautious, which leads them to sell or not renew their loans, which in turn creates liquidity problems, which means that people reduce their expenses and, since a Once one person spends someone else's income, income begins to go down. making people even less creditworthy as prices fall further, putting pressure on banks, payments continue to rise, causing spending to fall even further, the stock market plummets and Social tensions rise along with unemployment, as credit companies and cache labels reduce their expenses, the whole thing begins to feed. itself, the other way around, becoming a vicious, self-reinforcing contraction that is not easily corrected, that the burdens have simply become too great, they need to be reduced, unlike recessions, and monetary policies are can alleviate by lowering interest rates and increasing liquidity, which in turn increases the capabilities and incentives to lend interest rates cannot reduce depressions, they are already at or near zero and liquidity, money can increase By ordinary measures, this is a dynamic that creates cycles of long-term debt, it has existed as long as there have been credits returning.

Even before Roman times, even the Old Testament described the need to erase that once every 50 years, which which was called heard with the jubilee, like most tremors, this arises and occurs in a way that has a real cure through how history remembers that money has two purposes. It saves a medium of exchange and a store of wealth and, because it has two purposes, it serves two masters: those who want to obtain it for the necessities of life, usually by working for it and those who have stored wealth tied to its value to throughout history. two reams have been called different things, for example, the first group has been called workers, the proletariat, those who have not, the second group was called capitalists, investors and those who have, for simplicity, we will call the first group, Clarett saurios, worker and the second group, capitalism, the proletariat of Gustin. workers made their money by selling their time and capitalists and investors made their money by lending others the use of their money in exchange for a good, they promised to return an amount of money greater than the loan which is a debt instrument or being a party of ownership in the business that we will call stocks or shares or a part of other assets in your real estate these two groups along with the government sets the rules are the main actors in this drama, well, in general, both dreams benefit from the loans and loans.

Sometimes one wins and one suffers as a result of the transaction. This is especially true for debtors and one person's financial assets are another person's financial liabilities. I hate promises to deliver money when the claims on financial assets are too high in relation to the money available. to make them big, the mystic of leverage or the free market credit system, outstanding finance stops working well, in the words of Title II, in the opposite direction of leverage, requiring the government to intervene heavily as The central bank becomes a large buyer of debt. I am a lender of last resort and central government becomes a redistribution and wealth like such songs needs to be a debt restructuring in which claims on future spending, i.e. debt, are reduced relative to what what they are and the rights over money, that is, this fundamental imbalance between the signs. of money claims that and the money supply example the cash flow that is needed to pay off the debt as current many times in history has always been resolved are a combination of the floral Everest that I described above the process is painful for everyone players sometimes so much that it causes a battle between chlorella to react, workers and capitalist investors can become so bad that loans are harmed or even in charge historians who say that the problems arose from the creation of credit normally we are white It was considered that a lot of interest money is a sin in both Catholicism and Islam.

In this study we will examine the BTM cycles that produce major debt crises and explore how they work and how to deal with them, but before we begin I want to clarify the differences, but we need to see them. many times flash' nari and inflationary depressions in deflationary depressions policymakers respond to the initial economic contradiction by lowering interest rates, but when interest rates reach 0% that lever is no longer an effective way to simulate economy, debt restructuring and austerity dominate without being balanced by any of the questions, euphoria, especially money printing and currency depreciation in its face, which overloads debts and debt service as person with income because income falls faster than restructuring, that wage dance reduces debt stocks and many borrowers are forced to accumulate even more debt. to cover those costs of higher interests as not to the deflationary depression it is time for it to happen in countries where and most of you like Hannibal data it was better at the national level in local currency so that the eventual deadly collapses produce only forces and defaults but not a currency or a rebalancing of The payments problem, inflationary depression is classically central in countries that depend on foreign capital flows and have therefore accumulated a significant amount of foreign currency-denominated debt that is not It can monetize, for example, purchased with money printed by the central bank on that foreign capital. low flows create creation becomes a credit crunch an inflationary crunch to leverage capital would grow givens of loans and liquidity at the same time as currency falls produce inflation inflationary depressions in which a large amount of debt is denominated in foreign currencies are especially difficult to manage because policy makers The capabilities to grow the plane are more limited.

We will start with deflation and depressions. The sides of the classic deflationary debt cycle presented below illustrate the seven stages of an Arab catapult long-term debt cycle by tracking the economy's total debt as a percentage. of the economy's total income, GDP, and the total amount of debt service payments related to GDP over a 12-year period. Throughout this section I will include charts of similar archetypes that are constructed by averaging the deflationary leverage cases from the early parts of the cycle into the early part of the cycle that is not growing faster than income even though debt growth Trung, this is because that growth is being used to finance activities that produce rapid income growth, for example, borrowed money can be used to expand a business and make it more productive and support rate of income loads. debt are low and the balance sheet is healthy, so there is plenty of room for the private sector, the government and the banks to leverage growth growth and inflation are neither too hot nor too cold, this is what is called Goldilocks Period: The bubble in the first stage of the bubble that grows faster than income and produces strong asset returns and accelerated growth.

This process is generally self-reinforcing because increasing incomes, net worths, and asset values ​​increase borrowers' ability to hack. This happens because then you have to determine how much they can lend based on the borrowers, the income from a project, the cash flows to serve as debt, see the net value, the collateral, the footprints are established prices, rice, m3, their own capabilities, linked all these rights, although this set of conditions is not sustainable because it is a growth knife that increases faster than the income that will be needed to cover the scope of the service bar, so they spend more than That, they can earn and buy assets at high prices, the leverage here is an example of how that happens.

Let's say you make $50,000 a year and have a net worth of $50,000, you have the ability to borrow $10,000 a year, so you could spend 60,000 a year for several years, even though you only earn $50,000 for an economy in yourJointly increased borrowing and spending can lead to higher incomes and an increase in the valuations of stocks and other asset values, giving people more cholesterol to borrow and then borrow more and more, but as long as the borrowing boost growth, is affordable in this upward wave of the long-term debt cycle. promises to deliver money, like that Burton rice, related both to the supply of money in the economy in general and to the amount of money and credit secretaries that come in through the transfer of income and the sale of assets, this type of artistic wave, Khalid continues for decades, variations mainly.

Due to periodic central bank lightning and ZuV credit easing, these debt cycles are shorter and many of them typically add up to a long-term debt cycle. A key reason why the long-term debt cycle can be sustained for so long is that the central bank progressively implements lower interest raids that increase asset prices and, in turn, people's wealth, we sift the present value effect that lowering interest rates has a price on assets, these tips, that the service burden increases and reduces monthly payments, white sand ship shores and credits, but this can No will continue forever. Over time, the debt service payments will be equal to or greater than the amounts the cars can borrow, and the debts, that is, the promises to give money, will become as large relative to the amount of money there is. in Thérèse to give but premises to deliver. money, in the example debt cannot increase any further relative to money and credit, the process works in reverse and leverage begins, since borrowing is simply bunching spending forward, this person spends $60 000 per year and earns $50,000 per year you have to cut your expenses. at $40,000 a year for as many years as you spend 60,000, everything else is an oversimplification, this is the essential dynamic that drives the inflation and deflation of a bottle, the beginning of a bubble, bull market bubbles usually us They start with extrapolations. of bull markets justified bull markets are initially justified because interest rates are lower, monetary investment assets such as stocks and real estate are more attractive, so they rise and economic conditions improve, leading to the economic growth and corporate profits, better balance sheets, lots of capacity to take on more debt, all of which cause the value of the company to increase as assets increase in value networks and spending income levels increase, Investors, entrepreneurs, financial intermediaries and policy makers increase their trust in our government.

The prosperity that supports the leverage of the process, the blessing also encourages new buyers who do not want to miss the action to enter the market that fuels the rise of a global power. Often, cheap loans and bubbles occur because of implicit or explicit government guarantees that encourage lending institutions to lend recklessly as new speculators and lenders enter the market. market and confidence rise credit standards fall banks leverage and develop new types of lending institutions that are largely unregulated these non-bank lending institutions are collectively known as a shadow banking system these shadow banking institutions They are time could be less under the mantle of government protections, but they signed, new types of credit vehicles are frequently invented and much financial engineering is carried out.

Lenders and speculators make a lot of quick and easy money, which reinforces the bubble by increasing the capital of the speculators, giving them the collateral they need to secure new ones. loans at that time most people do not think that is a problem, on the contrary, they think that what is happening is a reflection of a confirmation of the boom, there is a cycle type phase, Huli feeds on itself by taking stocks as an example, rising stock prices leads to more spending and investment, increases profits, which raises stock prices, which reduces credit spreads, encourages an increase in loans based in a decrease in collateral barrages and higher profits, which affects spending and investment rates, etc.

During such times, most people think that assets are fabulous treasures and consider anyone. Who doesn't think they will miss out as a result of this dynamic? All types of entities accumulated long positions. Large mismatches between assets and liabilities increase in the form of a short seller taking on debt, so in the long term liquid liabilities are assumed to invest in illiquid assets. and see investing in riskier dents where other risky assets with money borrowed from others and/or D borrow in one currency a loan in another all to speed up the process all wine debts increase rapidly and debt servicing costs increase even faster, as the charts below show.

It is also often believed that a picture in the markets when there is a consensus that the price is set at this consensus is a good rough picture of what is to come, although history has demonstrated that characteristic II is likely to turn out differently than expected, in other words, humans by nature, like most species, strain astonishing multitudes and recent experience is more intense than is appropriate in these senses and Because the consensus opinion is reflected in the price, the lord stocks tend to heal at those times the increases in duk-soo income ratios are very rapid (chart above) shows your catechol route object as a percentage of GDP for the deflationary deleveraging that we average the detachable bubble sees the center deleveraging at an average rate of 20 to 25 percent of GDP over three years, so the blue line represents the arc of the long term, that cycle in the form of total depth of the economy divided by the total income of the economy as it passes through its various phases.

The red line shows the total amount of debt service payments related to the total amount of income bubbles. A quarter are likely to be at the top of the business cycle, balance of payments cycles and/or long-term debt cycle as a bubble nears its peak, the most vulnerable in the economy, but people are filling the richest and most optimistic, and the case study towards active income levels. It averaged about 300 percent of GDP, so those may be some rough average numbers. Below are some key indicators of what the archetypal bubble looks like. The role of monetary policy.

In many cases, monetary policy simply helps create a bubble rather than limiting it. This is especially true when inflation and growth are good and investment returns are high. These periods are tactically interpreted as productivity bids, but reinforce investor optimism as Sabelli's investment assets leverage. In such cases, central banks that focus on inflation growth are often reluctant to exactly tighten the money. This happened in Japan in the late 1980s and in much of the world in the late 1920s. This is one of the biggest problems with most central bank policies, for example, because central bankers target their inflation or inflation and growth and then point to bubble management. the exact growth they allow can go towards financing the creation of bubbles if inflation and real growth do not seem to be too strong, in my opinion it is very important that central banks aim for deep growth with good work being done at a sustainable level, for example. at a level at which income growth is likely to be large enough debt service regardless of credit The easy of central bankers and the times say that it is too difficult to detect bubbles and that it is not their place to evaluate and control them That is It's their job to control inflation and growth, but what they control is money and credit, and when that money and credit turn into debts that can't be paid, that has huge implications for growth and inflation in the future, the biggest depressions of the task. when will the bubble burst and if these central banks that are producing the debts that are inflating them one controls it and who will be the economic pain of allowing a large bubble to inflate and then burst is so high that it is reckless for policy makers ignore them and I help your perspective change well it's time for the central bank to restrict short money a little rates rise on average when inflation and growth start gety hearts it's time to say that monetary policies don't They are suitable for managing bubbles because bubbles are occurring in some parts of the economy and there are no others who think about the entire economy.

The time when the central bank fell behind completely came during those periods, and borrowers are not yet particularly strained by higher debt-servicing costs. Quite often, their interest payments are increasingly covered by borrowing rather than income growth. a clear sign that the trend is unsustainable all these pullbacks when the bubble bursts and the same linkages that inflated the bubble make the slowdown a self-reinforcing madness and asset prices decrease both capital and collapse or Lally's leverage of speculators, causing lenders to back off. This forces speculators to sell, which drives prices down even further. Lenders and investors set an example by throwing money away from risky financial intermediaries and risky investments, causing you to have liquidity problems, usually the affected market, our markets or Juden elif large and elaborate enough for the losses in the accumulated debts are systematically threatening, that is, they threatened to bring down the entire economy, causing bubbles.

Well, the details may differ between cases, for example, the size of the bubble, whether in housing stocks or some other assets, how exactly did the bubbles burst, etc.? The many cases of bubbles are much more similar than different and each is the result of logical cause and effect relationships that can be studied and understood. If one has a solid mental map of how bubbles form, it becomes much easier to identify them. To identify it beats the crisis before, of course, I look at all the big markets and see which, if any, are in bubbles, then I look at what is connected to them that would be affected when they burst, while I want to see exactly how it works here.

Most of the defining characteristics of bubbles can be measured in one: prices are high relative to traditional measures, so prices are pricing in rapid future price appreciation from these high levels. 3lauras, the broad bullish buying sentiment is being financed with high leverage. five buyers have made exceptionally astonishing forward purchases in For example, contracted inventory was built up for supplies, etc., to speculate or protect against future price increases. Six new buyers. For example, those that were previously on the market have Android Market. Seven stimulus monetary policies threaten to inflate the bubble even further against the color policy that is bursting.

At this point I want to emphasize that it is a mistake to think that any metric can serve as an indicator of an imminent attack on the prices of the debt-to-income ratio of the economy as a whole or even to the debt-to-income service payments of the economy. economy. In general, which ones are better are useful, but ultimately the measures have an effect, since this is a debt paid crisis. Well, you have to look at the individual's specific debt service capabilities and what they miss out on in these averages, more specifically, a high level of debt. o a debt service on income is less problematic if the average is well distributed throughout the economy than if it is concentrated, especially if it is concentrated in key entities, it is hot when prices have been set by many leveraged buyouts and the market becomes leveraged completely in length. and overvalued becomes Ronnie for the reversal this reflects a general principle when things are so good that searches for things improve everyone believes they will improve types of markets that are being created wild highs are triggered by different events, but often occurred when The central bank begins to synchronize and interest rates increase in some cases theTightening is driven by the bubble itself because growth and inflation are rising and capacity constraints are starting to bite in other cases too hard.

Tightening is driven externally, for example, for a country that has become dependent and indebted. of external creditors the withdrawal of the guard sergeant as causes will lead to an adjustment of liquidity the tightening of monetary policy in a currency in which the debts are denominated may be enough to cause foreign capital to retreat this may happen for reasons not related to conditions in national economy, for example, psychological conditions in a country with a reserve currency, liquidity restriction in that currency in connection with the financial crisis results in a decline in livestock, etc., also an increase in The currency that is related to the currency in which the income is found can cause an especially severe contraction.

Sometimes and it is a sapele, shortfalls in cash flows due to various reasons can trigger debt crisis, whatever the cause of debt service, please hurt access prices in commodity prices. artistic assets, for example, underprice, which has a negative wealth effect as lenders begin to worry. that they may not be able to recover their cash from those to whom they lent to borrowers so squeezed and increasingly shared that their new loans go to debt service and/or are not renewed and their spending declines, this is classically the As a result of people buying investment assets at high prices with leverage psychically sending overly optimistic assumptions about future cash flow, these types of chronic debt problems start to arise about half of here before the peak of the economy at the beginning and The most vulnerable and free pocket the risk.

It's dr. begin to see defaults on payments lenders begin to worry the credit press begins to fine and risky loans enslave income from risky assets to the collection of less risky assets contributing to the threat of contraction psychically in the early stages of the top increasing short-term rates Nerys eliminates the spread with long-term rates I need the additional interest rates earned by term rather than short-term lenses, decreasing the incentive to lend relative to the incentive to old cash as a result of the yield curve being flattened inverted, that is, long-term interest rates are there and allow Relative to the use of short-term interest rates, people are incentivized to switch to cash just before before the bubble bursts, slowing credit growth and causing the dynamics described above at the beginning of the top.

Some parts of the credit system suffer, but others remain reduced and are not eliminated. that the economy is weakening, so as the central bank continues to raise interest rates and restrict credit, the seeds of recession are being planted, the quickest ray of adjustment coming cyclically about five months before the market top of securities, the economy is then running at the high rate with men pushing against the ability to produce unemployment is normally at cyclical lows and inflation rates are rising rising short-term interest rates makes holding cash more attractive increases interest rate users count future cash flows assets that we cannot risk, it is a surprise, it is slowing down lending, it also produces ice and cash credits, the factor is more expensive, has low demand, rates As charts generally peak just a few months before the top in their stock markets, the more leverage there is. exists and the higher the prices, the less adjustment is needed to create a bubble and the larger the bust continues to understand the magnitude of the slowdown that is likely to occur, it is less important to understand the magnitude of the adjustment than to understand each of they. particular sensitivity of the sector to the adjustment and how much less it will kiss Kate.

These pictures are best viewed by looking at each of the major sectors of the economy and each of the big players in these sectors rather than at economy-wide averages in the period immediately after the doubling. The wealth effect of surprise moves has a greater impact on economic growth rates and monetary policy People tend to underestimate the size of these effects In the early stages of a bubble bursting Stock prices fall and earnings still have not declined people who say they can We consider decline to be a buying opportunity, a great stock market, a relationship to both our past earnings and expected earnings, without regard to the amount of decline in earnings, the days that will likely result from was very calm, but the reversal reinforces itself as wealth falls. first and incomes fall later, creditworthiness worsens, leading to credit activity rates, which hurt spending and reduce investment rates, while making it less attractive to borrow to buy financial assets, This in turn affects the fundamentals of the person's asset, for example, weaker economic activity leads to corporate profits.

Chronically disappointing, leading people to sell and driving prices down further, this has an accelerated impact on asset prices, income and wealth, to depression in normal recessions, when monetary policy is still effective. Fein balance but windy amount of money and the need to serve it. Debt can be rectified by cutting interest rates enough to produce a positive wealth effect that stimulates economic activity and debt service burdens. This cannot happen in a depression because interest rates cannot be reduced materially because they have already reached 0% or in cases where foreign exchange outflows and currency weakness are great, foreign interest rates are higher. high due to credit or currency risk considerations, this is precisely the formula for a depression, as shown, and this happened in the initial stage of the birthday 1930 32 depression them 2008 2009 depression in well-managed cases such as the US In 2007 and 2008, the Federal Reserve lowered rates very quickly and then that didn't work.

We have used 2 alternative means to stimulate, having learned from their mistakes and the third use of the fact was the reduction to relieve and even harden at times to defend. dollar respects loans as depression begins, death, defaults and restructurings, hatred of various actors, especially they take advantage of lenders, for example, banks like an avalanche, both lenders and depositors, justified fears, se feed on themselves, leading to runs on financial institutions, but Title II does not have the cash to meet them unless there are cuts under the umbrella of government protections interest rates do not sit idly because interest rate floors Risk-free rates have already been reached and because US credit spreads increase interest rates on risky loans rise making it difficult for those debts to be paid interest rate cuts also do not help much for struggling lending institutions. of liquidity and are suffering from the increase in this phase of the cyclone debt defaults in matters of austerity an example that the forces of deflation damage and are not sufficiently balanced with the stimulating and inflationary forces of printing money to cover debts, for example , the monetization of debt, what the investor is not willing to continue raising and borrowers struggling to find cash to cover their debt payments, liquidity and, for example, the ability to sell investments for money becomes an great concern, for example, when If you own a debt instrument of 100,000, you assume that you will be able to exchange it for $100,000 in cash and, in turn, exchange the cash for $100,000 in goods and services;

However, since the ratio of financial assets to money is high when large numbers of people rush to convert their financial assets into money and buy goods and services on bad terms, the central bank has to provide liquidity, perhaps by printing more money, or allowing many defaults, from which depression can arise or cause solvency problems or cash flow problems. during this phase there are many problems of both types a solvency problem means that according to the regulatory and plantation rules the entity does not have sufficient amount of capital to operate an example it is bankrupt and must be closed so the accounting of those who have a large impact on the severity of the debt problem at the moment the cash flow problem means that an entity does not have enough cash to meet its needs usually because our lenders are taking money from it, an example is that there is a run, a problem of cash flow may occur even One of the entities has adequate capital because equity is an illiquid asset.

Lack of cash flow is an immediate and serious problem and, as a result, the current and main problem of most debt crises, each type of problem requires a different approach if the solvency problem. There is an example that a doctor does not have enough equity capital he has an accounting regulatory problem the chambers I left it either by providing enough equity capital or by changing the accounting regulatory rules which has a problem governments can do this directly through tax policy or indirectly through smart monetary policies if the debt is in its own currency similarly if the prevailing cash flow exists fiscal or monetary policy and provides cash or collateral that resolves it a good example of how these forces are relevant is highlighted by the differences between detecting banking hyzer of two years 1980 in 2008 in the 1980s there was not as much marketing market accounting because the prices involved loans that were not traded every day in the public markets so the banks were not as insolvent as They were in 2008 with marketing market accounts in 2008.

Banks require capital injections and/or guarantees to improve their balance sheet. Both crises were managed successfully, although the way they were managed had to be different when entering the depression phase of the cycle, that is, the severe contraction phase. Some protections learned from past depressions. energy bank deposit insurance weakness to provide lenders of last resort with financial supports and guarantees to inject capital into systemically important institutions or the initial Article II provisions in place and are not useful, but they are rarely appropriate because the exact nature of The debt crisis has not been psychologically well thought out, a large number of loans have been granted under a relatively unregulated shadow banking system or in instruments that have anticipated risks and inadequate regulations.

What happens in response if these new realities depend on the limit but are other policymakers? decision simulations and this is not to allow them to do their best some people mistakenly think that depressions are psychological that investors and leave their money from risky investments to say for once AG from stocks in high yield lenses to government bonds and the cash lord is scared and that the economy will be restored if only they can be convinced to move their money back into riskier investments. This is for two reasons: First, contrary to popular belief, yeast dynamics are not primarily psychological, but are primarily supply-driven. and the demands and the relationship between credit money and goods and services, so psychology of course also has an effect, especially when it comes to multiplayer scenes, liquidity positions, still, if If everyone went to sleep and woke up not remembering what happened, they would be in the same position because the obligations to give money would be too great in relation to the money they are receiving from the government, but they would still face the same options. that will not have the same consequences and that is why it is related to this if the central bank produces more money to allocate a shortage, it will lower the value of money, making it a reality that creditors are worried about being returned an amount of money that is worth less than what they alone, while some people think that the existing amount of money remains. the same and it simply means firm risk for the assets, so the less risky that is not true.

Most of what people think of as money is actually credit and credit has appeared out of nowhere during good times and then disappeared at that time, soFor example, when there is probably something in your journey with a credit card you essentially do it by saying: I promise to pay you together and distort the honor create a credit asset and credit my ability, so where did you get the money out of thin air? You created credit, it disappears in the same way, suppose The store owner rightly believes that you and others will not pay - credit card company and that the credit card company will rush to pay him, then he currently believes that the credit asset you have is not there freely, it did not go off the rails, it is simply gone as this involves a part B of the devil's origin process these people discover that much of what they thought was their wealth were cheerful promises of people to give them money now that those premises are not maintained that wealth no longer exists as an investor By trying to convert their investments into money to raise cash, they test their ability to receive payments and, in cases where they fail, the torrents and securities sellers of Panik and G are a core, naturally, those who have experience in operations, especially banks, although this is the truth that most entities that depend on short-term financing have problems raising money and credits to meet their needs, so cascades of defaults and restructurings hit people, especially those who do not have lenders at their disposal, the banks and fear that they will cascade through the system these fears feed themselves and They lead to a struggle and their results in a shortage.

Here liquidity crisis: the dynamic works like this initially the money dies transferring income and the debt is not enough to meet the obligations tetras assets cause them to be sold since it is necessary to cut spending to raise cash. asset values ​​of the week: farm reducing the value of collateral and in turn reducing income. The creditworthiness of this borrower is joint, but both volleys of his assets and collateral in a relationship debt, for example, his net worth and B, the size of his income relates it to the size of his debt service payments this is so much their net worth their income fell faster than their debts the borrowers become less creditworthy and the reluctance of the Linde lenders these remain a suffering in some ways the depression phase is dominated by the flesh and the resources of reduction of the debt, that is, defaults and restructurings and began to occur without material efforts to reduce the debt burden by printing money because one person's debts are another person's assets, the effects of aggressively cutting the value of those assets can be to reduce in greatly the demand for goods, services and investment assets for a right.

To be effective it must be large enough for a loaded tree service gate to track itself if the write down is 30% then the creditors assets are reduced by that amount, if that sounds like a lot, in In reality it is much more, since most lenders are leveraged, for example, they borrowed to buy assets, the impact of writing off 30% of your net worth can be much greater, for example, the creditor is leveraged by two to one, experiencing a sixty percent decrease in its network. For example, his assets are double his net worth. Therefore, the drop in asset value has double the impact, as banks are heavily leveraged at about twelve to one or 15 to one;

That scenario is obviously devastating for them and for the economy as a whole, even as deaths are making that burden rise like a penny. and income falls, death levels also rise relative to net worth, as shown in the table below, such as debt to income and debt not to worry about. Thrasher increases and credit availability decreases, naturally, the credit crunch reinforces itself on the downside, capital is invested x The middle class experiences a tremendous loss of real wealth during depressions because the value of their investment portfolios collapses. Customer inaccuracy. Prices are totally around 50%. motivated to take money out of the country, which contributes to currency weakness, dodge taxes, and view security brochures. investments that do not depend on credit, for example, low-risk government bonds, gold or cash, of course, the real economy and the financial economy suffer from the constraints of monetary policy.

The uncontrolled contraction of credit produces an economic and social catastrophe. Workers suffer as incomes collapse and job losses are severe. Working people who were once able to support their families lose the opportunity to have meaningful work and suddenly become destitute or dependent. Homes are lost because homeowners can no longer afford to pay their mortgages, retirement accounts are lost from cleaning and green savings, these conditions can persist for many years if policy makers do not harness the forces policies that reduce the debt burden are divided into four broad categories: one, from austerity to debt defaults, restructurings, three that generate sensations, money printing and wealth transfers, that is, from the haves to the have-nots, by using these types of levers, policymakers can mitigate the worst effects of depression. and manage the ships of lenders and borrowers and economic conditions, but it is important to recognize that each of these levers has different impacts on the economy and creditworthiness.

The key is to get the mix right so that the deflationary and oppressive forces are balanced by the inflationary forces and the stimulated policymakers tactically get the mix between printing charitable money and incorrect redistribution initially taxpayers are understandably angry about the deep mistakes and with financial institutions whose excesses cause a deep debt crisis and foolish governments, i.e. expensive taxes to bail them out and policymakers justifiably believe that excesses will occur again if lenders and borrowers suffered the disadvantages of their actions, what is called the problem of moral hazard, for all these reasons policymakers are generally reluctant to provide government support and that the construction and the agony it produces increased rapidly, but the longer the way to apply stimuli or remedies to the mix we are in.

Where was the leverage done? They eventually choose to provide a lot of collateral, Prince, a lot of money and monetize a lot of debt, which raises the economy to a reflection of deleveraging Airy if they do so. With these things and getting the right combination done quickly, the depression is much more likely to be short-lived, like the short period of depression that followed the US crisis of 2008, if they don't, the depression is often prolonged as the direct depression of the 1930s or that of Japan the last decade after the bubble of the late 1980s to realize that the two biggest impediments to managing a debt crisis are the lack of knowledge how to handle it well and the politics or the legal limitation of the powers of policy makers to take necessary actions;

In other words, ignorance due to lack of authority are bigger problems than that in themselves. Well, we, Nix, are a successful investment manager, his heart is not that big. It is difficult to be a successful economic policymaker, we investors all have to understand how the economic machine speaks and anticipate what will happen next. Policymakers have to do that, in addition to getting everything right, that is, they have to know what needs to be done while navigating it all. the political impediments that make it so difficult to achieve, that requires a lot of intelligence, willingness to find and political astuteness, that is, skills, heroism and sometimes, you know, with all those things, the limitations under which they work still prevent them succeed.

Below I will explain each of the four levers and how they are typically used in tea in the depression phase. Posterity in the depression phase. The policymaker is Calitri's austerity moment because that is the abuse. Nowadays, it is natural to want to let those who have themselves and others in trouble bare the shores. The problem is that history does not effectively rebalance debt and income is cut, spending income is also cut, so many painful spending cuts are needed to achieve a significant reduction in debt revenue ratios as ikana shrinks government revenues it's time to hit the cliff, all at the same time demands and governments increase deficits as a result increases total seeks to be fiscally responsible at this point governments tend to increase taxes both measures are big mistakes printing money to stop the bleeding and stimulate Economic pride often depends on agreements between lending institutions, especially those that are not protected by collateral governments, which puts the Central Bank and the central government in the position of having to decide which depositors and lenders should be protected from losses and which should be allowed. sustain them and which institutions are systemically important and should be saved how to do these things in a way that maximizes the security of the financial economic system and at the same time minimizes costs to government taxpayers, but such signals are offered all kinds of guarantees to financial institutions systemically critical and very often some of these institutions are nationalized.

There are usually many laws and policies that affect how quickly this is done. Some of the money needed comes from the government, that is, it is allocated through the budget process and some from the government. Central banks printing, governments inevitably do both, although to varying degrees, in addition to providing money to some essential banks. Governments also often provide money to some non-bank entities. You will likely have trouble raising funds through taxes and loans. Central banks are forced to choose between printing even more money to buy their government specifications or allowing their governments and private sector to compete for the limited supply of money that will only become even more tied to money. they inevitably choose different ones cyclically, although these movements do not necessarily call me progressively larger doses, since the more modest initial attempts failed to rectify the imbalance and reverse the leverage process;

However, those early efforts to do so generally caused temporary periods of relief that are manifesting in beer market rallies in financial assets and an increase in economic activity. During the Great Depression there were six major stock market rallies of between 16 percent and 48 percent in a bear market that declined a total of 89 percent. All of those spikes were caused by the government. actions that aimed to reduce the fundamental imbalance when those changes and policies to print money buy assets and provide collateral are well managed are what the debt cycle means from its oppression agreed to the leverage phase to its expansion beautiful face of deleveraging the truck below shows how This money printing occurs in the US in the 1930s and again after 2008, while light and highly stimulative policy is a critical part of a deleveraging, it is probably not enough when the breasts, are systemically important, institutions will fail, policy makers must take action to keep these entities functioning, they must act immediately to reduce panic. and guarantee liabilities governments can increase guarantees on deficits and debt issuance central banks can provide systemically important institutions, that is, institutions whose failure threatens the continued functioning of the financial system and/or the economy with injections of money from time to time Governments can force liquidity to remain in the banking system by imposing deposit freezes, which is generally undesirable because it intensifies panic, but is sometimes necessary because there is no other way to provide liquidity, but the private credit is contracting and liquidity is tight, the central bank can ensure that sufficient liquidity is provided to the financial system that they are obtaining against a widening range of collateral or it is a widening range of financial institutions that normally do not are considered part of theirlending practices support the solvency of systemically important institutions the first step is usually to incentivize the private sector to address the problem, often by supporting mergers between failed banks and healthy banks and through regulatory pressure to issue more capital to the private sector;

In addition, accounting adjustments can be made to reduce the immediate need for capital to remain solvent by purchasing more time. so that real institutions can get out of their problems we capitalize we nationalize covered losses of systemically important financial institutions when the previous approaches are insufficient to address the solvency problems of systemically important financial institutions the government must take advantage to recapitalize the banks bankrupt and act to stabilize lenders and Monsanto the supply of credit is essential to prevent the crisis from getting worse certain institutions are part of the meaning of the system one would hate to lose them even if they are not making money at the moment it would be like losing a shipping port and a depression because the port goes bankrupt, you want the port to continue operating and send ships to commons, so you need to protect it in one way or another, whether through nationalization, loans or capital injections, debt defaults and restructurings Ultimately, the process of clearing existing debt is critical to the future flow of money and credit and to truly returning to prosperity.

The challenge for policymakers is to allow the process to work on its own in an orderly manner that ensures economic and social stability. The best managed cases are those in which policymakers pay fifth. recognize the magnitude of the credit problems, not save all institutions that are expendable, balance the benefits of allowing failing institutions to fail and be restructured with the risks that such failures could have detrimental effects on other lenders and borrowers prepared to credit that see creating or restoring robust credit pipelines that allow creditworthy borrowers and ensure acceptable conditions for growth and inflation while resolving bad debts for longer, the most important decision policymakers must make is whether They will change the system to solve the root causes. of debt problems or simply restructure debts so that the pain is distributed across the population and over time so that the debt does not impose an intolerable burden.

These things rarely happen right away. Policymakers psychologically failed to recognize the magnitude of the problem initially, instead announcing it. a series of one-off policies that are insufficient to change the situation it is only after what is normally a couple of years and a lot of necessary economic pain that they finally act decisively the speed and aggressiveness with which policy makers respond is one of the most important factors in determining the severity and duration of the depression and the question of how exactly these shores are divided between two governments, meaning that society as a whole and bondholders or Verizon stock depositors , etc., is an important recipient, typically non-systemic.

Institutions offer to absorb their losses and, if they fail, are allowed to declare bankruptcy. The resolution of these institutions can take several different forms. In many cases about 80 percent of the cases were studied. They merge with elephant institutions. In some other cases, the assets are liquidated. or transferred to an asset management company (AMC) created by the government to be sold little by little, in some cases the authorities recognize that ensuring the viability of the entire banking system is essential and in recent years measures have been adopted liquidity and solvency at the level of the banking system. common for bank liability guarantees to be issued in countries in the developed world in rare cases the government has carried out the best bank recapitalization in all banks instead of leaving souls focused on systemically important institutions there are relatively clear lines for which creditors receive protections and small depositors receive preference and experience minimal or no losses in almost all cases, this is often explicitly defined as part of the deficit insurance plan, coverage is usually extended during the crisis period to ensure the liquidity of the banks, even in cases where the reasons are an explicit deficit.

Scheme depositors often have priority in around 30% of the cases studied, depositors suffered losses, although they were often in foreign currency deposits through conversions, they had not built an exchange rate market in most the cases when institutions fail, subordinated debt of capital and large depositors and losses by sword. regardless of whether the institution was systemic Lee protection of senior and subordinated debt holders important or not and equity recapitalizations simply dilute existing equity holders seen primarily in the developed world 3 sometimes policymakers prioritize domestic creditors to offer foreign creditors especially when their lungs are too private sector actors and our capital structures D, this is especially true since deaf parents as insurance are allowed funds, but at the same time governments to They often end up prioritizing the repayment of loans from multinational institutions such as the IMF and the Bis, as it is important to maintain the availability of support from these public entities that effectively act as lenders of last resort for countries under pressure.

Finally, the process of dealing with bankrupt lenders is accompanied by its series of regulatory reforms. Sometimes these changes are to the taste of men and other times they are very big sometimes they are for the better sometimes they are for words that organize changes in how banks operate, for example, putting deposit guarantees in the 1930s or Dodd -Frank and the Volcker Rule in 2010 in the US to labor market reforms, from requiring banks to improve banking standards, to opening banking systems to competition, including foreign entry, to increasing capital requirements and removing protections for lenders, politics plays a big role in determining what referrals are made in some cases, so tree ferns end up distorting private sectors and market-based incentives over lens flow which may limit credit flows to creditworthy borrowers and/or increase the risks of future credit problems arising;

In other cases, they improve the flow of credit, protect households and reduce the risk of debt problems in the future. There are two main ways in which assets from failed lenders or there are some poorly managed lenders. Assets are a transfer to a separate entity an agency to manage the restructuring and disposal of assets about 40% of the case studies or being there about 60% of the cases is still the balance sheet of the original lending institution and there are several main levers to get rid of non-performing loans; asset loan sales to third parties and securitizations D. the use of an agency generally speeds up the management of debt problems because it frees up existing collateral for re-lending and helps consolidate bad debts into a centralized entity that can manage the sales and restructuring.

The sale of assets to AMC also often serves as a mechanism to make transfers to the bank by printing them at above-market prices. AMC Article: Publicly owned entities that are mandated to sell assets with a set processing period, for example 10 years, while minimizing taxpayer cost and disruption. In asset markets, they do this by trying to quickly sell the non-performing assets of failed institutions and by working overtime to manage and sell non-performing assets. In some cases, AMCs have explicit objectives of restructuring non-performing debts to reduce the debt burden they generally carry. Some foreign or assumed IRA accounts are best issued as government debt and cannot perform well when legal, political, or financing restrictions limit their ability to recognize bad debts and restructure them, allowing the original lender to manage their bad debts, often Of course, when the original lender is state sponsored making the closed withdrawal public MC gain in other cases losses may be allowed to remain on the lender's balance sheet if they are not so large that there is no experience There is usually a relatively clear distinction between how systemically or strategically important borrowers are handled and how those in our forces technically important borrowers are those of Of course, through debt restructuring to make ongoing debt service manageable.

This can occur through the intention to carry out share exchanges by reducing existing debts. The reduction of the interest rates that were being paid on loans. From time to time, policymakers also introduce new loan programs to these borrowers to ensure they are continuous. liquidity This process is often explicitly one of the objectives of AMCs created to manage bad debts. Borrowers without systemic importance are generally left to restructure risky loans for private lenders or are allowed to declare bankruptcy and be liquidated. Central governments often take steps to help reduce the debt burdens of the sole sector. AMCs may also take steps to restructure debt burdens instead of foreclosing on loans as part of their objective of maximizing recovery values.

The following table shows how frequently two policy measures described above are developed in our study of the 48 historical markets. The cases detailed in part 3 on wealth redistribution. Wealth gaps widened during bubbles and become particularly galling for the less privileged during difficult times. As a general rule, each town shares a budget with the poor and there is an economic turnaround. There will be an economic turn. and political conflicts, it is in those moments when populism from both the left and the right tends to emerge. increasing in the US today, as they were in the 1930s, in both cases the net worth of the top zero one percent of the population is imposed approximately that is the button ninety percent combined in some cases increasing the taxes on the rich becomes politically attractive because the rich made a lot of money in the boom, especially those working in the financial sector who are perceived to have caused problems due to their greed, central bank purchases of financial assets also benefit proportionally to the rich because the rich with many more such assets tend to make large political shifts to the left. has similar distributive efforts, this strongly drives the rich to try to deal with their money in ways and games that provide protection, which in turn has effects on assets in the currency markets, it can also cause an economic hollowing out of those areas because the large income generators were also the large income contributors, general tax revenue is being reduced and leading these areas to suffer sharp drops in property values ​​and the reduction and FLE type services the tax increase takes the form of higher taxes on income, property and consumption because these forms of taxes are the most effective in raising income.

Wealth in inheritance taxes sometimes also increases, although these groups pool very little money because so much wealth is liquid that it is practically difficult to collect and forces the taxpayer to sell illiquid assets, thus making the tax payment undermine capital formation, regardless of the fact that transfers rarely occurred in a man contributes significantly to leverage unless there are revolutions and huge amounts of property are nationalized five the beautiful deleveraging is beautiful deleveraging occurs when foreign levers move in a balanced manner to reduce intolerable shocks and produce positive growth were being deaf burdens and acceptable inflation, more specifically, leverage becomes beautiful and there is sufficient stimulus, i.e. through money printing, that theMonetization and currency devaluation and the new debt bubble awakens the best way to deny that the sudden and airy depression is for the central bank to provide adequate liquidity and credit support and depending on the needs of different key entities for capital for the central government to provide that to remember that the Spending comes in the form of money or credits when increased spending cannot be financed with debt histories too much debt related to the amount of money the risk of debt service increased lapse in debt service relief must come from an increase of money, this means that the central bank has to increase the amounts of money in the system;

The central bank can do this by lending against a wider range of collateral, both lower quality and longer maturity, and also by purchasing to monetize lower quality and/or longer term debt, this produces relief and if that is done in the The correct amount allows deleveraging to a level with positive growth, the correct amounts are those that neutralize what would otherwise be a deflationary collapse of the credit market and B obtains The nominal growth rate is marginally above the nominal interest rate for , in a way, publish, print the deleveraging process. So what do I mean by basically income needs growing faster than that?

For example, let's say a country is going through leverage as debt to income. 100 percent ratio, that means the amount of debt you have is the same as the amount of income the entire country makes in a year. Now think about the interest rates on that debt, let's say it's 2% if that's 100 and the interest rate is 2%. so if no debt is paid it will be 102 after one year if the income from 100 acres is 1% the income from the lode will be 101 so the debt burden will increase from 100 to 102 102 a 101 sell so that the British do not increase existing debts the growth of nominal income must be greater than nominal interest rates and the higher the better, as long as it is not so high as to produce acceptable inflation or an acceptable currency, the People ask if printing old money increases inflation that they want if it offers sets that fall credits and Deflationary forces are balanced by this reflation.

Air force that is not a theory, has been repeatedly demonstrated in history. Remember that spending is what the masses pay for with money has the same effect on prices as a dollar of spending paid for with credits. By printing money, the central bank can compensate for the disappearance of credits with an increasing amount of money. This impression takes the form of purchases by the central bank of government securities and non-government assets, such as corporate securities, stocks and other assets, which is reflected in money growing at an extremely rapid rate at the same time as credits and real economy activity contract, traditional economists see that as the velocity of money decreases, but it is nothing like that, what happens at those times is that the credit of destruction is being offset by money creation if the balance between credit substitution and active stimulation of the economy is true, this is not inflation.

Airy but the abuse of stimulants exists because stimulants work so well relative to the alternatives that there is a real risk that they could become stranded causing a Leverage Ares Inflation like the fiery hyperinflation of the 1920s or those of Argentina and Brazil in the 1980s the key is to avoid printing too much money if policymakers got the balance right each leverage is not as dramatic getting this balance right is much more difficult in countries that have a large percentage of debt denominated in foreign currency and owed by foreign investors such as environment and South American countries because that set can be monetized or restructured since money is easily printed, monetization of debt and government guarantees are inevitable in depressions in which interest rates are reduced.

A job, although these tools are of little value in countries that are limited in printing or that have no assets, for example, print again and cannot easily negotiate the redistribution of the debt burden. All the deleveraging we've studied, which is most of them. that have taken place over the last hundred years eventually led to large waves of money creation, fiscal deficits, and monetary devaluations versus gold commodities in stocks and in different cases, policymakers are entitled to what exact combination of laboratory normally receive depending on the nature of their monetary system, the following table shows the trajectory of the currency in deflationary deleveraging in the 21 cases in which the freezing of money occurs in two classic waves: first the central bank provides liquidity to institutions under stress and then makes large-scale asset purchases to at least emulate the economy cyclically, governments with monetary systems pegged to gold or foreign currency commodities are forced to have tighter monetary policies to protect the value of their currency than those governments had for monetary systems, but eventually they detect that the contractions become so painful that they give in, break the bond and Prince, that is, if they abandoned the system or changed the price of the product they would exchange for a unit of money, for example when the value of the dollar and therefore the quantity of money was tied to gold during the Great Depression, suspending the promise of converting dollars into gold so that the currency would be valued and more money created was key to create funds in the stock and commodity markets and in the economy.

Printing money, buying assets, and providing collateral were much easier to do in the 2008 financial crisis because they didn't do it. Requires an official exchange in the gem currency to be legalized. The chart below shows a trajectory of gold prices in the US during the Great Depression. Gold froze overnight when Roosevelt broke the gold peg. the dollar against all currencies, including loans, in the end policymakers always print, that's because austerity causes more pain than good big restructurings eliminate the team and 12: rapid and wealth transfers from the haves to have-nots do not occur in sufficient size without revolutions also printing Money is not inflationary if the size and character of money creation offsets the size and character of credit contraction, it is simply denying the deflation and virtually all policymakers taking advantage of x' pastures had to discover this for themselves after first trying other paths without satisfactory results.

History shows that those who did it quickly and well, like the US in 2008 and 2009 had fared much better than those who did not like the US in 1930 and 33. The following table summarizes the tactical amount of printing and currency devaluation necessary to create the turn from depression to a beautiful deleveraging in average printing. of money has been around 4% of GDP per year there is a large initial devaluation of the currency of around 50 percent against gold and deficits are sought at around 6% of GDP on average those aggressive stimuli reach two or Three years of post-depression stocks have fallen more than 50 percent, economic activity is falling about 10 percent, and unemployment has risen about 270 to 15 percent, although there is a lot of variation in providing these numbers, all These path indicators are a sensible consensus where I consider Lee when looking at the differences that are very interesting, but beyond the scope of this study, it is clear that when monetary and fiscal policies are implemented faster and smarter, The results are much better than these averages, so I reiterate the key to achieving a beautiful deleveraging, a balance between inflationary and deflationary forces.

The right amounts of stimulus are those that neutralize what would otherwise be a deflationary credit market collapse and achieve a higher than nominal growth rate. The interest rate is enough to alleviate the debt burden, but not enough for at least who to use those assets. In short, when all is said and done, only a few things distinguish whether leverage is managed well or poorly and it hasn't blinded them then. A lot of pain can be avoided. Policymakers can learn from common mistakes and understand policies. Rates and central bank purchases affect assets have fallen as the economy enters a period of low growth and low yields and assets and central bankers have to shift to other forms of monetary stimulation in which money and credit go more directly to supporting spenders when policymakers faced these conditions in the 1930s coined the phrase "pushing on a string," one of the biggest risks of these states is that if there is too much money printing, monetization and too severe monetary devaluation relate it to the amount of deflationary alternatives, an ugly inflationary leverage can Akula help us understand the different types of monetary policies that can be used throughout the leverage.

I think they come in three different styles, each with their own effects on the economy and markets. Monetary policy. A monetary policy driven by interest rates. What I will call monetary policy is the most effective because it has the broadest impact on the economy when central banks reduce interest rates, they stimulate the economy by producing positive wealth effects because the lower interest rate increases the present value of the most investments. facilitate the purchase of items and credit because monthly payments decrease, which increases demand, especially for interest rate-sensitive items such as durable goods and housing, and considers that debt service burdens are reduced, which improves cash flows in spending. mp1 is strictly the first approach to the debt crisis, but when short-term interest rates are around 0%, it no longer works effectively, so central banks must adopt a second type of monetary policy: quantitative easing for you II, as it is called now, for example, printing money and buying financial assets.

Seikaly's dead assets are monetary policy. - Works by affecting the behavior of saving investors compared to spending borrowers because it is driven by purchases of financial assets, usually the assets that impact saving investors the most when the central bank buys a bond gives investors the cash that they normally used to spend. buy other financial assets that they consider more attractive, what they do with that money and credit makes a difference in the world when they invest in the type of assets, the final expenditure stimulates the economy when they invest in those that do not. As financial assets, there must be very large market gains before money reaches spending, and spending comes more from those who have enjoyed market gains than from those who have not.

In other words, Chile certainly benefits investors, savers and, for example, those who want. financial assets much more than people who do not, thus whitening the wolf gap, while the MPT is generally less effective than changes in interest rates, it is more effective when risk and liquidity premiums are large because those Premiums fall when risk premiums are large and money is added. For the system, real risks are reduced at the same time that there is more money seeking returns, triggering purchases of riskier assets. There are often higher respective yields that drive down their prices and produce a positive wealth effect, but over time, the use of quantitative easing to stimulate the efficiency of the economy decreases because risk premiums reduce and asset prices they rise to levels beyond which it is difficult to advance further and the wealth effect diminishes, in other words, at higher prices and lower expected returns, the compensation for taking risks becomes too small to enter there, stupid prizes that would increase the potential returns, Riddler City, indeed the rewards, a risk ratio could make those who have a lot of assets see that terribly profitable asset called cash as more attractive, as a result Juhi becomes less and less cash.

YeahThey provide QE and private credit growth does not pick up, policymakers feel like they are pulling a string at this stage, policymakers sometimes monetize debt in even larger amounts in an attempt to compensate for its declining effectiveness, although this may help a little. There is a real risk that prolonged monetization will lead people to question the suitability of the currency as value to the store owner, this may lead them to start switching to alternative currencies such as gold. The fundamental economic challenge facing most economies in these phases is that of preaching. the power is greater and the capabilities to make them think this way there are only goods and services financial assets are rights over them in other words, holders of investment assets, for example, investors of capital assets believe that they can convert their holdings in purchasing power to obtain At the same time, service construction workers hope to be able to exchange units for the value of their contribution to the production of goods and services for purchasing power for goods and services, but since it is money, the currency They have no intrinsic value, the rights to them are greater than the value of what they are supposed to buy, so they must be devalued or restructured;

In other words, when there are too many debt liabilities, the assets must be reduced after restructuring or monetized. Policy makers tend to use monetization at this stage. mainly because it is stimulatory rather than contractionary, but monetization simply exchanges a debt I owe you for another newly printed money. The situation is analogous to a Ponzi scheme, as there are not enough goods and services likely to be produced to support Olli io u. - there is concern that people are not willing to work in exchange for everything that always use low interest rates coupled with low premiums on risky assets pose a structural challenge to monetary policy with interest rates and Monetary policy - once it is - ease the limits of theron that the central bank has very little capacity to provide stimulus through these two channels, that is, monetary policy has legal gas in the tank.

This totally happens in the later years of the AG 1937-38 long-term debt cycles and now in the US, which can lead to putting pressure on a chain. When this happens, policymakers must look beyond QE, so forms of monetary and fiscal policy characterized by monetary policy three, monetary policy three, monetary policy three puts the money more directly into the hands of spenders rather than investor savers and incentivizes them to spend because they are rich. People have less incentive to spend their incremental money and the credit they get than less wealthy people when the wealth gap is large and the economy is weak.

Directing spending opportunities to less wealthy people is more productive logic and history. shows us that there is a continuum of actions to stimulate spending that have Ryan's degrees of control as one of the extremes are coordinated fiscal and monetary actions and that those responsible for fiscal policy provide stimulus tired three government expenditures or indirectly by providing a census for non-governmental entities to spend at the other end of the The central bank can provide helicopter money by sending cash directly to citizens without coordination with those responsible for fiscal policy. Generally, although not always, there is coordination of monetary policy and fiscal policy in a way that creates incentives for people to spend on goods and services.

Central banks can also exert a very Mon croak influence Prudential policies that help shape things in a similar way to how fiscal policies would, for simplicity I've organized that continuum and provided references to specific past cases of each below of one a fiscal spending financed with increasing depth sometimes this is Perry with QE buying most of the munitions he used in the 1930s, the US during World War II, the US and The UK ended up with thousands of people seeing debt fines rise to tax spending, but the Treasury is not on the hook for debt because the central government the bank can print money to cover the payments, for example in Germany in the 1930s, the central bank can lend to entities other than the government that will use it for stimulus projects, for example, loans to development banks in China in 2008.

Three do not bother to analyze the issue in depth. and instead giving newly printed money directly to the government suspends past cases that included the printing of fiat currency, for example, in imperial China, the US numerical revolution, Germany in the 1930s, and the United Kingdom during World War II or the debasement of hard currency, the ancient rain of imperial China, 16th century England to print money and join leo cash transfers to households, that is, helicopter money when we prefer the early capital money we mean directing money into the hands of spenders, for example US veterans bonds during the Great Depression imperial China how attracting that money could take different forms the basic variants are to direct, say , advertise to all or target some degree of aid to one or more groups over others, for example giving money to the poor rather than the rich, money can be provided uniquely over time, perhaps as a universal basic income for all.

Of these variants can be combined with an incentive to spend, such as the money disappearing if you are not Spencer within a year, the money could also be directed to specific investment accounts, such as retirement, education, oral cancer, earmarked for loans, investments commercial activities aimed at socially desirable spending investments. another possible way to develop a policy, mr. distribute the profits of QE to households instead of the government big tech rights are accompanied by the creation of large amounts of money the Year in the Jubilee as a quote in ancient Rome the Great Depression in Iceland well, I want offer opinions on each of these I will say that The most effective approaches involve fiscal monetary coordination because that ensures that both the supply and spending of money will be in agreement.

If the central bank simply gives people money, money by helicopter and at the right time is less appropriate than giving them that money with suspended incentives; However, sometimes it is difficult for those. those who save monetary policy is a coordinated policy with those whose fiscal policy, in which case other approaches are used, also note that sometimes policies do not fall exactly into these categories, as they have elements of more than one of them, For example, if the government gives a tax break it is probably not advance capital money, but depends on how it is financed. The government can also spend money directly without a lung financed by the central bank, which is capital money through fiscal channels, while the central bands influence our shores and the availability of credit for the economy as a whole also have powers to influence the rise of the coast credit availabilities that were directed to parts of the financial system through their regulatory authorities these policies that are called macroprudential policies are especially important when it is desirable to differentiate entities, for example, when it is desirable to restrict credits to an excessively active area and at the same time stimulate the rest of the economy or when it is desirable to grant credit to some target entities but not always prudently.

Microprudential policies take numerous forms that are valuable in different ways across all seven. stages of the big debt cycle because explaining them here would require too many depressions that are explained in some of the independent seven thermalization eventually the system returns to normal although the recovery of economic activity and capital formation tends to be slow even during a beautiful Deleveraging typically takes five to ten years. The deadline has been missed by a decade for real economy activity to reach a maximum level. Any kind. Hui takes about a decade for stock prices to reach peaks because it takes investors a long time. to feel comfortable taking the risk of owning stocks again, for example, I could see that the risk premiums are high now that you have this template for deflationary downturns.

I recommend that you read the detailed accounts of the 2007, 2011 and 1928, 1937 US death cycles shown. in part 2 and then look at the summary statistics in the autotext of the moment in the case studies shown in part three: inflationary depression and currency crisis. In the previous section we analyzed the archetypal deflationary depth crisis that we created by averaging the 21 deflationary cycles that we can review in part 3, now we will look at its catapulted inflationary crisis that we created by averaging the 27 worst cases of inflationary cycles that are also shown in the part three after reviewing this template. I encourage you to read about hyperinflation in the Vollmer Republic of Germany under review. in depth in Part C to compare it with the catapults case described here before moving on to the external graphs and data, remember that currency and depth had two purposes, so be a medium of exchange and see the reserves of wealth which are one person's asset into another person's liability, which is a promise to pay in a certain type of currency, for example, dollars, Iranian pesos, etc., holders of debt assets hope to convert them into money and then it is a good and a service in the future, so they are very aware of the rate of their loss of purchasing power, that is, inflation related to compensation, that is, with the interest rate they obtain for maintaining it, central banks They can only produce the type of money and credit that they control, for example, the Fed generates money and credit denominated in dollars, the BOJ generates money and credit in Japanese yen. etc Through the relationship of biotic signs over time central banks and phim market borrowers and lenders technically create larger and larger ponds of debts, debt assets and liabilities, the larger the accumulation the greater the challenge for central bankers to balance opposing pressures so that the pile does not collapse. towards a sudden, airy depression in one direction or an inflationary depression in the other;

Those who control monetary and fiscal policies can generally balance these differences in final prices because they have a lot of power to redistribute the burdens so that they are distributed. Although they cannot always balance them well, the central bank tactically alleviated that crisis by printing a large amount of the attacking currency is Dena, which while stimulating spending on investment assets and the economy also cheapens the value of the currency, in a level playing field if the currency falls relative to another currency at a rate that is greater than the currency's interest rate withholdings increase debt the weakened currency will lose money if the investor expects the weakness to continue without being compensated by rates Higher interest rates a dangerous currency will develop Dynamic dinah, that is, the dynamics of the currency is what produces inflationary depressions.

Holders of debt denominated in the worst-performing currency are motivated to sell it and move their assets into another currency. A reputable currency stores wealth like gold while there is a debt crisis and economic weaknesses in a country, it is usually impossible for the central bank to raise interest rates enough to compensate for the weakness of the currency, so the money leaves that country and the currency goes to safer countries. When so much money leaves the country that loans dry up, the central bank faces a problem. option of letting credit markets adjust or printing money that produces a large amount, although it is widely known that central banks manage the trade-offs between inflation and growth by changing interest rates and liquidity in the system, which is not widely known is that the central banks' trade-offs between inflation and growth are easier to manage when a man is flowing into the country's currency debt and harder to manage when it is increasing, that is because if there is more demand of the debt in currency that will raise the price of the currency, which All other things being equal, inflation will decrease and growth will increase, assuming that the central bank maintains the amounts of money and credit study and there is less demand, it will happen the opposite: how much would changing the demand for a country's monetary debt create changes in the currency?Changes in interest rates will depend on how the central bank moves its levers, which I will cover below for now, suffice to say that sometimes, when my knees flow, they go to the currency, real interest faces demands for the increase of rates for more and vice versa.

Capital outflows tend to occur when an environment is inhospitable, for example, because there are deep economic and/or political problems and they greatly weaken the currency to make matters worse. Those who finance their activities in the hostile country with the weaker currency by borrowing the stronger currency. They see their shores as deep or that makes the weaker currency fall even more in relation to the stronger one. For these reasons, the countries with the worst debt problems, many debts are denominated in a foreign currency and strongly hide the pending eyes of foreign capital, they have important weaknesses. monetary weakness is what causes inflation and there is a depression, normally all of this runs its course in the currency and debt prices fall enough to make them very cheap, more specifically, the contraction ends when the lower levels or enough money is created to alleviate. contraction B debt service requirements are reduced in some other way, for example, forbearance and/or seeing the currency depreciate much more than inflation increases, so that the country's assets and items sells to the world have such competitive prices that their balance of payments improves, but a lot depends on politics, if markets are allowed to run their course, eventually adjustments are made and problems are solved, but if politics gets so bad, productivity It falls into a self-reinforcing downward spiral and that spiral can continue for a long time.

Countries' currencies have long been vulnerable to severe inflationary deleveraging or hyperinflations, while inflationary depressions are possible in all countries and currencies, they are much more likely in countries that do not have a reserve currency, for example. so there is not such a global bias to maintain them. their monetary debts as a bastion of wealth they have low foreign exchange reserves the cushion to protect themselves again from capital outflows a small they have a large external debt so there is a vulnerability on the coast of the increasing debt var increases either in the rates of interest or in the value of the currency fits after having to deliver or a shortage of availability of dollars is a nominated credit have large and growing budgets and entire currents a deficit in the account that causes the need to borrow or print money to financing deficits have negative real interest rates, that is, interest rates that are significantly less than the inflation rate, therefore, they do not adequately compensate lenders for holding debt in currency.

They have a history of high inflation and completely negative returns on the currency, which increases the lack of trusts and the value of the currency tax generally speaking, the greater the degree to which these things exist. The grace degree of inflationary depression, the most emblematic case, is determined by our republic in the early 1920s, which is examined through a lens in Part C if you are interested in revealing real case studies that show the reasons why inflationary rather than deflationary depressions occur, it is worth noting the difference between the Weimar case study and that of the United States.

The Great Depression and 2007-2011 case studies, which are also examined in part, show that reserve currency countries that do not have significant foreign currency debt can have inflationary depressions, while they are much less likely to have inflationary contractions that are as severe as inflationary depressions can be. They more slowly and later did the leverage process after sustained and repeated use of RV stimulation to reverse deflation and leverage any country, including one with a reserve. The reserve currency may experience some movements out of its currency with changes in the severity of the balance between inflation and growth described above.

If the reserve currency country allows much higher inflation to maintain stronger growth by printing a lot of money, it can further undermine demand for their currency erode their reserve currency status, for example, make investors view them as less efficient or less efficient or retain wealth and converts their leverage into an inflationary one. The faces of the classic inflationary debt cycle. five stages that mirror the stages of deflationary deleveraging x' but are different in important ways over recent decades. I have navigated through a number of inflationary development impulses and investigated many more that turn out more or less like deflationary leverage, up to the fourth. stages of depressions I will begin this section with a look at the stages of inflationary deleveraging of the Orcas failure, just as in the previous section, this archetype was created by averaging 27 x' of inflationary deleveraging in which there was a lot of debt denominated in foreign currency.

I will then compare the archetype to specific cases of hyperinflation to highlight the differences in the early parts of the cycle in the LC boom. Favorable capital blooms are the result of golden fundamentals, that is, because the country is competitive and there is potential for Productive investment at this time is that levels are low and balance sheets are healthy, which simulate expert candles and, therefore, Therefore, foreign capital that finances investments that produce good returns and generate productive growth. Capital flows both within and between countries are typically the most important flows to watch because they are the most volatile as the cycle begins, debt and income increase by adding comparable rates, and both debt and equity markets Stocks are strong, which encourages investing frequently.

Wood borrowed money, governments and private sector banks started Sbarro, which makes sense for them because revenues are increasing rapidly. making it easier to serve as debt these core fundamentals and early leverage said the country is bracing for a boon which in turn attracts more capital the self-reinforcing positive cycle intensifies when demand for the currencies improves if the currency is cheap enough to offer attractive opportunities to foreign investors such as Lidl NC or investing entities that can produce at low cost in the country and sell to export markets in foreign currency to give them a good return, since in the country More is sold to foreigners than it is bought.

With them, a country's balance of payments will become favorable, leaving it enough for its currency to be greater than the supply, which makes the work of central banks easier, that is, it can obtain more growth per unit of inflation because positive inputs can be used to appreciate the currency. lower interest rates and order to increase reserves depending on how the central bank decides to handle it in this time of initial monetary strength, some central banks choose to enter the currency markets to sell their own currency in exchange for the incoming currencies in order To avoid increasing and to avoid the adverse economic effect of its increase, if the central bank does this, it must do something with that newly acquired currency, which is to buy investments denominated in that foreign currency, such as typically bonds, and put them in an account to maintain foreign exchange reserves.

Foreign exchange reserves are life savings. They can be used to bridge imbalances between the quantities of currency demanded and the emancipation of Kushan movements from the currency markets. They can also be used to purchase assets that could be desirable investments where strategic Alfred returns the process of Reserve accumulation is simulated in the economy because it decreases upward pressures on its own currency, allowing a country to simultaneously attract or expert competitiveness. and puts more money into the economy, as central banks need to create more money supply of the foreign currency, which increases the quantity. of funds in national currency to buy assets, which causes asset prices to increase or is lent at this time, the total return of the currency will be attractive because those who once buy what the country has to offer need to sell its own currency and buy the local currency or being the central bank will increase the supply of its own currency and sell it for the foreign currency, which will bank the currency.

Assets increase when measured in their own currency, so during this time a country has a favorable balance of payments. There is a net inflow of money that causes the currency to appreciate and foreign exchange reserves to increase. Listening to money movements stimulates the economy and causes the markets of the countries to emerge. Those who invest in the country make money with the return of the currency. Three combinations. of changes in the price of the currency in the differences in the performance of the assets and/or in the appreciation of the assets the more the currency appreciates the less the assets will appreciate before the bubble the bubble emerges in the middle of a virtuous circle that Bolsters itself from strong capital flows, good asset returns, and solid economic conditions.

The capital that came in during the early ab swing produced good returns as it was invested productively and allowed for asset price appreciation that they have tried to obtain yet. more capital in the bubble phase the currency and/or asset prices are increasingly hit and financed by the bet that the prices of these investments are too high to produce adequate returns, but my indebtedness continues because the prices are increasing and that increases rapidly relative to income and there is a large wave of money entering and/or remaining in a country or currency typically the exchange rate is strong, foreign exchange reserves increase and the economy prospers or, in In some cases, the currency increases a lot and the economy grows more slowly. currency that makes it desirable to maintain assets denominated in it and desirable to maintain liabilities that denominated quantity of currencies and/or produce for the creation of money that causes prices to increase so in any case during these bubbles the total returns of these foreign assets, That is to say, prices in local currency plus currency appreciation are very attractive, in addition to the fact that the country's economic activity encourages more foreign entries and fewer national exits;

Over time, the country becomes a difficult place to invest and its assets become overflowing, leading to depths and bubbles in the stock market, investors believe. The country's assets are a fabulous treasure and anyone in the country is missing out on investors who were never involved with the market. When the market becomes fully leveraged and overvalued, it is time to reverse the balance here and below we show some key economic developments that typically look like the bubble deflates in vote one foreign capital flows are high on average around 10 percent of GDP vote we see that the central bank is accumulating foreign exchange reserves vote 3 the real effect is that it accelerates and is overvalued on a PPP purchasing power parity basis of around 15 percent bullet for stocks rebound an average of more than 20 percent over several years to its peak all types of entities build a structurally long monetary position because there is a constant reward for doing so, which motivates most participants to own the currency of the country that is enjoying a sustained wave of investment in it, although they often find themselves in this position without explicitly taking it or without fully recognizing it, for example, foreign companies, sets of operations in the hot country could finance their activities with their own funds. currency to maintain liabilities in the currency they expect to be weaker, but they may prefer to maintain their deficits in the local currency and may not cover the currency exposure that comes from revenue from sales in that country.

Similarly, local companies could borrow in the weaker foreign currency that foreign bankers are eager to lend because the market is hot there are many different ways there is a bull market rule of saint is a multinational entity get in London that local currency 1 the influx of foreign capital financing is a billion in consumption say that imports increase faster than exports and current accounts worsen, while investments in a country create strong growth and increased incomes that It makes a country's borrowers more creditworthy and more willing to borrow, at the same time that lenders are more willing to lend them high expertise.

Increases generally for raw materials increase the country's income and incentivize investments as bubble emerges there are fewer productive investments andat the same time there is more capital going after them the fundamental attractiveness of the country that caused the boom is fading in part because the rising currency is eroding the country's competitiveness during this stage, growth is increasingly financed with debt in instead of productivity gains and the country technically becomes highly dependent on external financing, this is noticeable and Zep prices denominated in foreign currency these emerging countries generally borrowed mainly from the Broads. with debts denominated in foreign currency due to a combination of factors including the local financial system not being well developed, less confidence in using the local currency and a small stock of domestic savings available to be lent as prices rise and the economy is strong, this generates higher levels of spending in the economy and higher levels of payment obligations and foreign currency to make said payments for services, as with all debt cycles, the positive effects come first and the negative effects come later, the debt burden increases beyond that t GD P R Increases annually rate of about 10% in three years foreign currency increasing on average about 35% of total depth and about 45 percent of GDP physically the level of economic activity, i.e. the GDP gap is very strong and growth is well above potential, leading to limited capacity as reflected in a GDP gap of around +4% the graph below shows what happens to the depth and the current account in the average the small 7 inflationary leverage in cases that we will call the archetype just as I did the graphs of the deflationary deleveraging archetype highlights each of the stages with the zero points and the graphs which represent the peak of economic activity, classically during the death of the bubble, a percentage of GDP increases from about 125 percent to about 150 percent and the current account deteriorates by about, say, a percentage of GDP during the bubble.

The gap between countries' incomes and their finding widens that the country requires increasing capital inflows to drive continued spending growth, but levels of economic activity can remain strong at the top of the cycle only as long as capital-motivated inflows continue. the expectation of continued high growth momentum. increased asset prices and caused the currency to strengthen further at this point the country is becoming more fragile and even a minor event can trigger a reversal below we summarize the conditions through hump swings which led to the area of turning 27 to take advantage of the Zulu cadets we break the places where there are higher levels of foreign currency denominated debt and the cases that eventually have the smallest and most extreme economic outcomes, measured by measure, a severe decline in growth and prices of stocks and increases in unemployment and inflation, as you will see, the countries that were most externally dependent during the boom and experienced the best asset bubbles, ultimately experienced the most painful results three top defense and currency defense Higher reversal occurs from the bursting of the bubble, that is, when the flows that caused the bubble and high currency prices level higher surprises and behind which growth rates eventually become unsustainable, this puts A cycle opposite to what we saw in the boom is underway in which we can in capital in fluid average asset price curves deteriorate economic conditions, which in turn slows capital flows and our surprises weaken.

Furthermore, the spiral sends the country into a balance of payments crisis and an inflationary depression because at the top people are very committed to the optimistic scenario and because that optimism is reflected in prices, even minor events can cause a slowdown or a flourishing capital inflows and increasing domestic capital outflows worsening trade balances play a psychic role generally due to the high level of the currency and excessive domestic consumption the letter high imports and the first changes in capital flows These circumstances that ended up triggering such a crisis are usually more important than what could be a series of financial difficulties for a family or an individual, a loss of income or a credit adjustment, a large increase in costs, like a rise in gasoline costs, or a hit to low prices, or having borrowed so much that repayments become difficult, any of these shocks would create a gap. between the amounts of money that come in and the amount of money that is spent, which has to be closed in some way in the typical cycle, the crisis arises because the unsustainable rate of capital that fueled the bubbles decreases, but in many cases there is some kind of shock such as a drop in oil prices for an oil producer generally the causes of higher reversal have very few categories one income from the sale of goods and services to foreigners falls, for example the currency has risen to a point in which it has made the country's exports more expensive raw material exporting countries may suffer some type of failure in raw material prices see the costs of items coming from abroad or the debt cost increases three falls in capital flows that enter the country, for example, foreign investors reduced their spending networks or nested investments in the country this occurs because Eddy is sustainable The pace naturally slows because something leads to greater concerns about economic or political conditions or to see aThe tightening of the monetary policy in the local currency and/or in the currency in which those debts are denominated or, in some cases, tightening abroad creates pressure for foreign capital to withdraw from the country for a country's own citizens or companies once your money is taken out. weakening their country's currency capital flows are often the first shoe to drop in a balance of payments crisis directly cause a weakening of growth because the consumer investments they had been financing are reduced this makes domestic borrowers appear less creditworthy making foreigners less willing to lend and provide capital so the weakening is self-reinforcing growth slows relative to potential as capital inflows as capital outflows Lowe's internal export earnings rise slightly prices fall quantities sold typically fall or remain unchanged experts no longer increase change in capital and income flows drives asset prices down and interest rates rise slowing down growth rates of the economy in this way depend on inflows this worsens the fundamentals of companies and further expels capital flows the economy suffers a deep crisis as prices fall and banks fail During this stage there were increases both on the part of the holders of foreign exchange assets as well as the policy makers who are trying to support the holders of foreign exchange assets, psychically worried that the policy makers will impose restrictions on their ability to get their money out of the country, which encourages them to take their money out of the country. your money as silk further increases balance of payments problems policymakers worry about capital outflows and the possibility of a currency collapse as the balance of payments is Jiri rates the work of the central bank it becomes more difficult, that is, you get less economic growth per unit of inflation because negative flows cause the currency to depreciate, interest rates increase or reserves decrease, depending on how the central bank decides to handle it at this stage.

Central banks generally try to defend their currencies by filling balance of payments deficits by reducing spending. reserves and/or raising rates, these monetary defenses are managed, currency declines rarely work because liquidating reserves and clearing interest rates creates more opportunities for sellers, while it does not make currencies and interest rates reach the levels they need. to achieve sustainable economic conditions, let's look at this tactical defense and why it fails. There is a critical relationship between A the interest rate difference and B this part the forward monetary relationship the amounts the currency is expected to fall are quoted and therefore how much Unless the forward price is below the spot price, for example, if the markets expect the currency to fall 5 percent in a year, you will need that currency to have 5% higher interest rates, the math It is even starker when depreciation is expected in short periods of time.

Right now, if the markets expect a 5% depreciation of Vermont, then you will need that currency to earn a 5% higher interest rate during that month and a monthly interest of 5% equates to an annual interest rate of around 80 percent, a level that is likely to increase. produce a very severe economic contraction in an economy that is already awake because a small expected monetary depreciation of say five to ten percent in one year would be equivalent to a large interest rate premium of five to ten percent annually or more this path is intolerable in other words a managed currency The fall accompanied by the fall in reserves makes the market expect to consider a future depreciation of the currency, which raises domestic interest rates, as described above, acting as an adjustment in a moment when the economy is already weak.

Furthermore, the expectation of continued valuation will encourage greater capital withdrawals and devaluation speculation will widen the balance of payments gap and force the central bank to spend more reserves to defend the currency or abandon gradual depreciation. Furthermore, defending the currency by spending reserves will have to stop because no sensible policymaker will want to be left without those savings. In such currency defenses, policymakers, especially those advocating a peg, typically make bold and confident statements promising to prevent the currency from weakening. All of these things classically happen just before the cycle moves to its next stage, which is letting go of the coin.

It is psychic during the currency's validity. defense against the fall of the City forward currency price before the spot price this is a consequence of the relative relationship between the interest rate differential and the currency spot prices that I mentioned earlier to the extent that the country adjusts monetary policy to try to support the currency. they are simply increasing the interest rate differential to artificially keep the currency in spot, it greatly supports the places, the forwards will continue to fall relative to this, as a result what is initially seen is a bullwhip-like effect and the forward tends to leave the spot down as you go. the interest rate differential increases the spot and then finally catches up after the currencies go and the following despotic exchange rates allow the interest rate differential of Janeiro, which mechanically causes the forward to recover in relative to spot at this point in the cycle capital controls are a third Often, as a last resort that rarely works, they may seem attractive to policy makers as they directly cause fewer people to take their capital out of the country, but history shows that they usually fail because investors find ways to get around them and be the same.

The act of trying to catch people makes them want to escape the inability to get their money out of the country is analogous to one's inability to get their money out of a bank. Fear of it can lead to a run, but capital controls can sometimes be a temporary measure. Although in no case are they, it is the same solution, generally this phase of the monetary defense cycle is relatively short, about six months, but reserves fall between 10 and 20 percent before the defense is abandoned by depression, often when these currencies allow it. Well, as mentioned above, the country's inflationary deleveraging is analogous to what happens when a family has problems making payments, but an important difference: like a family, a country can change the amount of currency that exists and therefore its volume, which creates an important level of countries to manage balance of payments pressures and that is why the world does not have a global currency changing the value of the currency changes the prices of a country's goods and services for those foreigners at a different rate than you have for your citizens, think about it this way if a family's breadwinner lost their job and would have to take a 30 percent pay cut to get a new one, which would have devastating economic effects in the family, but when acountry devalues ​​its currency by 30 percent, that pay cut becomes a 30 percent salary. cutting only relative to the rest of the world wages in the currency that matters to the family remain the same In other words, currency declines allow countries to offer price cuts to the rest of the world helping to generate more business without producing deflation domestic, so then Support the currency in unsustainable ways, i.e. expanding reserves, tightening monetary policy, guaranteeing very firmly that there will be no devaluation of the currency, and sometimes imposing controls on foreign aid. this is what we happily talked about after policymakers took the currency to go the currency has a large initial depreciation on average a fall in Iran of 30% in real terms its currency fall is not altered by operations stricter shortcuts, so that the losses from holding the currency are significant on average around 30 percent in the first year because the fall is very severe the authorities try to move it, which leads them to continue spending reserves on average another 10 percent cent for a year in bankruptcy.

Central banks should not defend their currencies to the end. The point of letting your reserves get too low or your interest rates get too high relative to what is good for the economy because the dangers posed by those conditions are greater than the dangers of devaluation; In fact, their evaluations are stimulating for the economy and markets, which is useful during the contraction of the economy. The fall of the currency tends to cause assets to increase in value measured in that weakened currency. They stimulate expert sales and help to the adjustment of the balance of payments by aligning spending with income also reduces imports by making them more expensive, which favors the domestic market Producers transform assets into currency with more competitive and attractive prices create profit margins for Spezza for its products Goods and set the stage for the country to gain more revenue from the breakup, cheaper and more competitive experts, but currency falls are a double-edged sword in the way policymakers handle them. they greatly impact the amount of pain the economy must suffer during adjustment not sure if the fall of the currency greatly impacts how much inflation rises and how inflationary depressions develop in all inflationary depressions the weakness of the Currency translates into higher prices for imported goods, much of which is passed on to consumers, resulting in a sharp rise in inflation.

The gradual and persistent decline in the currency causes the market to expect continued depreciation. of the currency in the future, which can encourage an increase in capital with travel and speculation widening the balance of payments gap a continuous devaluation also increases inflation persistent feeding and inflation psychology, which is why it is generally better having a large devaluation that brings the currency to a level where there is a two-way market, that is, where there are better expectations that the currency will continue to rise so that people are buying and selling, this means that it is less likely to hold higher inflation and if the market does not expect a one-time devaluation, then policymakers will have to spend reserves and/or allow interest rates to rise to defend themselves. the currency goes into devaluation, this is why policymakers usually say that they will continue to defend a currency until the moment they stop doing so after the authorities let the currency sing to savers and create expectations, fears of further devaluation, people push to exit Due to their position in the currency, many people have probably acquired large mismatches of assumed assets and liabilities because they were profitable at the time, making the reversal self-sustaining because when the currency weakens, mismatches suddenly go from profitable to unprofitable when capital is no longer available spending is the first to stop, even those who are not borrowing abroad are affected, since once capital spending one person becomes another person's income, the effects ripple through the economy causing job losses and even less spending growth stops lenders. especially national banks have debt problems foreigners are increasingly less willing to lend and provide capital cyclically capital inflows try to fall rapidly by more than 5% of GDP in less than 12 months capital outflows continue at a rate of 3 to 5 percent of the elite's target GDP Capital withdrawal is not much offset by money printing by the central bank.

Risk printing allows more people to exit the currency. They were sending copies of flights. Weaker growth causes investors to withdraw their money. In any case, assets that had been seen as fabulous treasures a short time ago now look like junk quickly get jumped from one boat to another salt and platon prices plummet nominal short rates rise typically around 20% points and an inverted yield curve printing is limited to one or two percent of GDP an average of stocks in local currency turns fall on average about 50%, they perform even worse in foreign currency turns, since One of the most important asset-liability mismatches is foreign currency-denominated debt, as its depreciations in local currency debtors that all foreign currency funds face a growing local currency debt load, There is not much borrowers can do, so they typically sell local currency to pay off debts placed on the edges and move more savings into foreign currency, all of which contributes to deepening the cycle of decline.

The pressure on local currency debt services increases further, on average, by more than 5% of GDP because revenues fall and foreign currency-denominated debt service increases when measured in local currency, restricting Income and spending further affects increasing debt burden on those who borrowed in foreign currency. effects of increasing burdens on those who borrowed in foreign currency debt to GDP Increases on average approximately 20% due to declining currency revenues falling currency also raises inflation as imports decline inflation becomes more expensive Increases sharply by 15%, reaching around 30% Inflation percentage stays high for a while on average for about two years from the peak during this phase, two swings of the pendulum for the most part everything looks great and most everything looks terrible different types of problems that are economic political currency, etc., for us hidden problems among us such as fraud, accounting and corruption come to the surface cyclically during those times there are bad environments the entry of money is discouraged encourages national investors to take their money out of the country this is when countries generally press the button the button is the mirror opposite of the bubble stage while investors during the bubble enter aggressively investors during catharsis exit aggressively those who lose money on assets in foreign exchange positions those who have been thinking about entering do not want to go near the place flee in panic so great imbalance between supply and demand, of course, in which a shortage of buyers and sellers of sellers causes prices to go down, this It is the most serious and painful part of inflationary leverage, since the downward spiral is self-reinforcing and rapid, it is at the bottom, cui it is so painful, that's all.

It produces a radical metamorphosis in prices and policies that ultimately produces the changes needed to change things, which is why I use the word catharsis when describing the hidsim button in theater or indeed in the crisis itself. Personal life says the seeds for ultimately change, renewal. Because the currency has become very cheap, spending on imports is eventually cut enough to restore the balance of payments, sometimes in addition to international aid, for example from the IMF, BIS and other multinational organizations that create the necessary settings. There are often major political shifts from those who have pursued fundamentally bad policies to those who will pursue economically sound policies.

Here are some key economic events that characterized their face. the bottom of the activity occurs after approximately a year with the three in the GDP gap that oscillates close to -4% 5 normalization the reversal in an eventual return to normality occurs when there is a balance between the supply and demand of the currency and relates it to that of other currencies, while this balance is partially achieved through trade adjustments. Seikaly is more determined by capital flows, so it arises primarily when the central bank manages to make holding the currency desirable again and secondly when spending and imports have fallen enough to cause an adjustment in the balance. of payments. capital in the country by making it desirable to belong, encouraging people to lend and save in the currency and not Sbarro in it, most importantly they need to produce a positive total return for the currency, it is an acceptable interest rate, that is, it is an interest rate that is not too high for domestic conditions, while most people, including most policymakers, think that the best they can do is defend the currency during the monetary defense phase, it is actually quite the opposite because the level of its currency is good for the trade balance B and produces a positive return and see that, as an appropriate interest rate for internal conditions, it is the low one, As explained above, the best way to achieve this is to let the currency depreciate sharply and quickly, while that will hurt those who are long that currency.

It is more attractive to investors who will get the long run from the devaluation because the total return of holding the currency, that is, the elispot appreciation of the currency plus the interest rate difference, is more likely to be positive and after a briefly depreciated currency level, it is a second intolerably higher interest rate to make the total return attractive, in other words, the best way to ensure that investors expect positive total returns in the future at a relatively low interest rate, What the weak internal conditions need is to sufficiently depreciate the current will of the fundamental and essential pockets of the balance of payments.

To control money printing and currency depreciations, determine whether the total return on the currency, that is, currency changes plus differences in interest rates, will be positive or negative, which will influence the willingness to sell or go short the currency. Devaluing the currency is like using a baton in that it provides short-term stimulus but is ruinous when it is a beast. It is very important to watch what central banks do before deciding whether or not it is wise to take a long position if investors are burned by negative returns for too long and the currency continues to fall.

Frequently, the breaking point that determines whether we will have an inflationary spiral or not. The central bank's goal should be to allow the currency to become cheap enough to provide the necessary simulation for the economy and the balance of payments while maintaining a restrictive situation. enough policy to make the returns from holding the currency attractive, as you can see in the chart below, the returns from holding the currency for foreigners start negative and rarely about a year after devaluation, even if the country as a whole has not affected its debt. frequently limits that certain entities within countries and policymakers have recapitalized systemically important institutions and provide liquidity specifically to marriage, but that is by providing this specific liquidity technically by printing money where necessary, they can help avoid a crisis of debt that could be traction. or it could cause kidnappings of capital flight but inflation in the air in the nature of money printing must be carefully balanced here is what we write Lisi when the country reaches the bottom the collapse of imports greatly improves the current account on average around At 8% of GDP, capital inflows are declining and capital flight is frequently decreasing.

The country turns to other international entities for support and a stable source of capital, especially when its reserves are limited. Short-term trading begins to decline after approximatelya year, but in the long term. rates continue to remain relatively high after peaking short trades return to pre-crisis levels in about two years decline in short trades is encouraging as interest rates fall forward currency prices rise They recover related to places as the currency stabilizes inflation usually takes almost two years after hitting bottom for inflation to reach pre-crisis levels. Of course, there are all averages and the actual amounts depend on the particular circumstances section of each country.

The considerable and painful decline in domestic conditions also helps clone the balance of payments gap reduce spending and imports through the crisis the country's average imports contract by around 10% this growth collapses and the stock market falls more than 50% classically the collapse of imports brings the current accounts to a surplus of 2% of GDP increasing from a deficit of -6% of GDP approximately 18 months after the crisis began in the early stages of the crisis the experts They play a minor role and actually tend to contract during the worst of the crisis, as other countries are sometimes also experiencing economic slowdowns. rebound in subsequent years, it generally takes a few years for the country to recover.

Investors who were hurt by their investments in the last cycle are reluctant to return, so the elites may take some time before capital inflows arrive because they are erroneously positive, but the price of domestic goods and the labor force national work fell with the currency, making the country an attractive destination for foreign investment and capital begins to recover hire experts in the growth of foreign direct investment if policymakers protect and recapitalize critical financial institutions channels domestic financial institutions are in place to support a recovery the country has returned to the early part of the cycle and begins in a virtuous cycle where productive investment opportunities attract capital and capital drives growth and asset prices, which attracts more capital inflows, suspending the rally usually after one or two years, then taking several years. generally about three from below before the level of activity returns to the average, the real exchange rate is undervalued, leads by about 10% on a PP basis at the beginning of stabilization and remains cheap, experts talk a little, 1 to 2 percent of existing GDP capital begins to return a few years later, on average, four to five stocks take about the same time to recover in foreign currency terms, the spiral passes from a more temporary inflationary depression to hyperinflation;

In many cases, authorities are able to engineer a recovery in which income and spending rise and inflation rates return to Lord's typical levels transitory balance of payments crisis a subset of inflationary depressions spiraling into hyperinflations hyperinflations consist At extreme levels of inflation the prices of goods and services double each year or worsen, along with extreme conditions of wealth loss and severe economic hardship because these cases are more common than one might think. It is worth analyzing how inflationary depressions lead to hyperinflations. The most important feature of cases where the spiral towards hyperinflation is that the authorities closed the imbalance between external income and external spending. and debt service and continue financing external spending in a sustained manner, it is time printing a lot of money, in some cases it is not voluntary.

Weimar Germany had a bankrupt type of external service. Britain was a recreation that for the most part could not default on the amount. The amount of capital that needed to flow into the country's eyelids was so large that it was practically destined. That is why Murray would face major inflation problems. See our case study from our necklace. In other cases, policymakers decide to continue printing money to cover foreign spending. aim to prop up growth rather than align spending with income if this is done repeatedly over years and on a large scale, a country could face hyperinflation that could otherwise have been avoided, as noted above, contrary According to popular belief, it is not that easy.

Stopping printing money during a crisis Stopping printing in capitalist flour can cause extreme liquidity shortages and often exhibits a Kannamma contraction and the longer the crisis lasts, the more difficult it becomes to stop printing money, for example in Vienna, Germany, there was literally a cash shortage because hyperinflation meant that the existing stock of money would buy less and less by the end of October 1923 to end the crisis. The entire stock of Germany from 1913 from those who have not achieved a mortal love for rye bread. Stopping printing which half meant that there was so little cash that commerce would have preferred to stop on frozen ground, at least until they came up with an alternative currency in an inflationary spiral.

Printing money may seem like a prudent choice at the time, but continue preparing it. Money adjusts again and again to the inflationary spiral until there is no way out. How the spiral develops all the time as the currency falls and printing is used, more and more people begin to change their behavior and an inflationary psychology that sets in on currency falls inspires more The layers of light that cause an ever-increasing feedback loop of depreciation, inflation and money printing eventually the links driving growth in previous rounds diminish and money printing becomes less effective with each wagonload of printing, more printed money is transferred to real assets or foreigners rather than being Spending on goods and services boosted economic activity, as investors who shorted cash and sent real foreign assets repeatedly were better off than those who saved and invested in the country.

Holders of national currency went from investing printed money in productive assets to real assets such as gold and foreign currency in order to cover inflation and the deterioration of their real wealth. Foreign investors stay away because the economy is weak and investors They are buying real assets Stocks suffer and no longer provide the wealth effect that drove previous rounds of spending The result is a currency devaluation that does not stimulate growth This dynamic is important for inflation deleveraging, so we will analyze it in detail when Continued currency declines lead to persistent inflation, it can become self-reinforcing in a way that feeds inflation psychology and changes investor behavior.

A key way this happens is when inflationary pressures spread. wages and wage costs of producers spiral workers demand higher wages to compensate for reduced purchasing power are forced to increase wages producers increase their prices to compensate sometimes this happens mechanically due to indexation contracts wage rate in which employers agree to increase wages with inflation as is normal in such cases of price and wage indexation, a vicious circle is created: the currency depreciates, domestic prices increase, the quantity of paper money increases Once again, the value of the currency, prices increase once again, and so, with each successive fall of the currency, savers and investors also change their behavior.

Savers who were not savers before now act to protect their power. acquisitive are faster in the short term in cash and buy foreign and physical assets as inflation worsens bank depositors understandably want to be able to obtain their funds in the short term so they can shorten their loans to banks deposits move to current accounts in the short term Instead of long-term savings, investors shorten the duration of their loans or stop lending altogether because they are worried about the risks of Garet defaulting or being paid with worthless money during inflationary deleveraging. debt maturities always falls, it is also cheap, there is a shortage of cash, as higher inflation and money printing reduce real interest rates, so capital withdrawal and borrowing faster due to illiquidity In the financial system, banks find it virtually impossible to meet the demand for cash. unable to fulfill their contracts due to cash shortages, companies are also suffering at this time.

The choice for central banks or remembered the benefits of the previous round of monetary declines is between extreme illiquidity or money printing, which is a rate that accelerates and a path that again survives, that is, it is an impression that they provide liquidity by printing money to support banks and often going directly to companies when interest rates are insufficient to compensate for future drops in the currency. This provision of liquidity provides the funds that allow investors to continue borrowing and inflation. Hedges such as real assets or gold, which further contributes to inflation and the depreciation spiral because much of the country's statistics are denominated in a foreign currency, which burdens the rise of the currency. declines requiring spending cuts and asset sales, while these effects were originally overcome by the stimulus of The currency crash becomes increasingly devastating as its effects fade and Britain's attempt increases.

These higher debt loads also mean that foreign investors want higher interest rates as compensation for the risk of default. This means that the currency decreases. Anne inflation often increases debt service and burden, making it even more difficult to stimulate through currency. Many governments respond to rising debt burdens by increasing income or tax taxes. wealth, with their net worths already eroded due to the bad economy and investments falling the rich desperately tried to preserve their rapidly shrinking wealth, that is at all costs, this leads to extremely high rates of tax evasion and increases leakages of brides' capital.

There is a lot of massive credit creation and debt, this debt does not result in much growth because much of it is expensive in foreign assets of the spending that occurs locally much of it does not contribute to the GDP, for example, investors buy many gold factories or imports, even medicines in the case of my Vimal republic, as the story of wealth tells, capital investments such as machinery and tools are purchased with store value because they were necessary, it is easy to see how these forces can create a feedback mechanism that causes inflation and The currency declines and rises until people completely lose faith in a currency.

Money loses its role as a store of value and people keep reserves of a few days in Mesa. The long list of zeros also makes it an impossible unit of account. Money also breaks down as a medium of exchange because monetary instability makes producers unwilling to sell their products in national currency and demand payment producers in foreign currency or boot because there is a shortage of foreign currency, liquidity reaches its point. maximum and demand collapses this forum of illiquidity cannot be alleviated by printing money, shops, clothing and unemployment increases as the economy goes into hyperinflation, it contracts rapidly because the currency decreases, which was previously beneficial now it only creates chaos, furthermore the seed causes economic contraction, hyperinflation erases financial wealth as financial assets failed to keep pace with currency depreciation. and inflation hyperinflation also causes extreme wealth redistributions lenders see their wealth inflated as do doctors liabilities economic contractions extreme wealth redistribution and chaos create political tensions and frequent flashes public servants such as police officers some They were once tried because they do not want to work for worthless paper money disorder crime looting and violence fortunately peaked during this phase environment Germany the government had to respond to the disorder by issuing a state of siege rescue military authorities greater power over internal policies such as carrying out carry out arrests and break up demonstrations investing during a hyperinflation has some basics going short the currency doing everything you can to get your money out of the car buying commodities and investing in commodity industries like gold, coal and metals buying stocks not It's a mixed bag when investing in the marketsecurities becomes a proposed loss as inflation moves into hyperinflation instead of there being a high correlation between exchange rates and stock prices, there is an increasing relationship between stock prices and stock rates.

Instead, he says that during this time gold becomes preferred over asset holdings, stocks are a disaster even though they rise in local currency and bonds disappear once inflation occurs, leverage becomes hyperinflation, currency never regains its status as a store of wealth, creating a new currency with very hard backing while phasing out the old currency is the classic path. that countries follow to end inflationary deleveraging, war economies or economies are totally different from regular economies in terms of what happens to production consumption when accounting for goods, services and financial assets, for example, the increase of GDP arising from the large reduction in armaments destroyed in war the reduction in the unemployment rate due to increases in military service the changes in production capacity and profits arising from the top-down allocation of resources and the nature of loans and other capital flows are not the same as in peace periods, so understanding these statistics requires a completely different orientation, trying to adequately convey how economic work works would require a completely different book, so I'm not going to delve into the topic now, but I will address them briefly because they are certainly important to understand the crisis which is where it was captured within our sampling period and it is very important to understand them if we enter another period of words, the geopolitical economic cycle. of economic conflicts leading to military conflicts both within and between emerging powerful countries and established powerful countries is Oakley's for anyone who Studies in history have been well described by historians, although those historians tend to have a cheaper political perspective and less a economic market perspective that I.

In any case, historians recognize it as a classic. The next sentence describes it as I say in Simply put, when within countries there are economic conflicts between the political rights of the rich capitalists and the political left of the poor proletariat, that leads to conflicts that result in populist, autocratic, nationalist leaders and militarists come to power and, at the same time, conflicts arise between countries between comparable strong economic and military powers, the relationship between economics and politics becomes especially intertwined and the probabilities of disruptive conflicts, for example, wars, become much higher than normal; In other words, economic rivalries within and between countries often lead to struggles to establish which entities are most powerful. in these periods we have war economies and after them, market economies and geopolitics experienced the hangover effects, what happens when you are in wars and as a result of the wars, they have a huge effect on what currencies, what deaths, what actions and what economies are worth what and more deeply throughout the social political fabric, at the broadest level, periods of war are followed by periods of peace in which the dominant power in the powers comes to see the rules because no one can fight them, that's the country - the cycle begins again due to The arrival covering the merger, appreciation of this great geopolitical economic cycle that drives the rise and fall of empires and their reserve currencies requires taking a much longer time period of 250 years, which I will address briefly here and in more detail in a future report, usually via notes.

Always in times of economic rivalry, emotions run high, populist leaders who prefer antagonistic paths are elected or come to power and concerns arise, however, that is not always the case, history has shown that over time there are two broad types of relationships and that is what, of course, depends on the type of relationship that exists, both types of relationships are cooperative competitive relationships in which the parties take into consideration what is really important to the other and try to give it to them in return of what they want most in this type of victory. To win a relationship, there are often difficult negotiations that are done with respect and consideration, such as with friendly merchants in a bazaar or with friendly teams in camp B, which will be threatening relationships in which the parties think about how they can toughen the other and exchange painful acts. hoping to force the other into a position of fear to give in to this type of relationship where everyone loses, interact 3 work instead of renegotiating, either party can force the second path by threatening a war in which the other loses. side, but it is necessary for both sides to adopt cooperative, win-win paths.

Both sides will inevitably follow the same approach in the back of all parties' minds, regardless of which path they choose. There must be very related powers. In the first case, each party must realize what it means. the other could force them and appreciate the quality of the exchange without being too aggressive, while in the second case the parties should realize that power will be defined by the liberation of the parties' capacities to ensure pain as well as their relative capacities. to inflict it. When it is not clear exactly how much power each side has to reward and punish the other side because there are many proven ways, the first way is the safest, on the other hand, the second way will certainly clear up the hell of war.

Which parties are dominant and which will have to be submissive, which is why there are prolonged periods of peace afterwards where the dominant country sets the rules and other countries follow them for as long as it takes for the cycle to repeat itself in terms of politics. economic during the award period, the most important priority is to maintain access to the financial and non-financial resources required to sustain a good or effort because no country has the capacity to finance a war and unrelated tolerable sustained expenditure. of current income one must have access to loans and/or have very large foreign exchange reserves.

Access to loans depends largely on each country's creditworthiness and the development of its capital markets, especially the strength of its own local currency debt market. Similarly, maintain access. to the critical non-financial resources required to sustain both the war effort and acceptable domestic economic conditions is essential during the period after the period during the recovery period the consequences of the debts on the market and the outcome of the war, whether water losing will be huge, the worst thing a country and therefore the leader of a country could do is go into a lot of debt and lose a war because there is nothing more devastating than everything else, don't do that, look what it meant for Germany after the World Cup.

The first war in the 1920s, which is explained in part two and for Germany in Jeff and after World War II in the late 1940s and into the 1950s, the following graphs show some of the changes in the economy of the Thai people, how countries shift much of their economies into war production. They borrowed heavily to finance large fiscal deficits and shift much of their workforce into every element of services and timber production. The first graph shows the rapid increase in government spending relative to private spending. The graphs below show the increase in military spending and a number of Soldiers averaging a number of war cases, both military spending and the number of soldiers as a percentage of the population increased about five times, for example, during the Second World War.

World War, twenty percent of the US workforce transitioned into the military after a major word ended All countries, both winners and losers, are saddled with debt and the need to transition from a war economy to a more normal economy, the large contraction in military spending generally caused rather than a recession, as factories are Countries tactically enter periods of deleveraging by working through large debts with the same dynamic foundations visible in other depressions. Z' deleveraging will come into play here soon. However, war losers experience significantly worse economic conditions before we attempted to demonstrate this dynamic. Losers experience much deeper depressions.

They resort to printing more money, significantly spend their savings reserves and see much higher inflation rates, sometimes experiencing hyperinflation. economies at this stage to give them more color, I suggest you read the Great Depression case studies of Weimar, Germany and the United States in part 2, as the former gives a good picture of the post-war period for a loser and the second shows how economic conflicts initiate a Seconds of events that lead to triggered words. He also suggests that you look at the US and UK parts in the post-WWII periods. Two examples of winners avoid the reasons we tend to have charts for Germany, Japan, and other losers around the world.

The period after World War II is that the consequences for their currencies in other markets and economies were so devastating that statistics were ridiculously unreliable or unavailable. In summary, I want to reiterate my headline. Debt crisis management is all about spreading the pain of bad debts and this can almost always be done well by taking a step forward in currency. The biggest risks tactically come not from the depths themselves but from the inability to policy makers to do the right thing due to lack of knowledge or lack of authority if the nation's debts are in foreign currency, much more difficult decisions must be made to handle the situation well and, in any case, the consequences will be more painful, as I know from personal experience that the understandings and authorities of political leaders look in many respects countries that can lead to dramatically different results and data to not react strongly enough until the crisis is extreme, their authorities because use a function of how powerful each country's regulatory check-and-balance systems are.

In countries where these systems are strong, which brings many benefits, there is also a risk that some required policy measures cannot be carried out because they are inconsistent. with the rigid drills and agreements that exist in place; it is impossible to break the rules well enough to anticipate all and even the most informed possibilities and an empowered policymaker is not likely to handle a crisis perfectly. The circumstances we are applying must be responded to instantly, often internally, with an illegal liquor regulatory system that does not have very clear rules. The balance control system is normally a critical protection against taking the necessary bold actions. old, the policy presented during the debt crisis and distortions increase.

Lost information is omnipresent, while these major debt crises can be devastating for some people in countries in the short and medium term, that is, three to ten. In the long term, its importance fades relative to productivity, which is more forceful and less obvious because it is less volatile. The political consequences, for example the population increase that results from these awards, can be much more important than the depth crisis itself, as the graphs below show. Real GDP per capita and helped put into perspective this big crash crisis and the little ones we call recessions. Contractions of more than three percent are shown in the shaded areas and point out how growth rates over time are much more important than the The biggest obstacles came more as a result of wars than the worst depressions, so it can be argued that those wars were caused by the political consequences of those depressions.