Housing, Depressions and Credit Collapses
Unprecedented residential mortgage credit expansions preceded the economic collapses in 1929-1930 and 2007-2008, and both collapses generated household balance sheet crises, which were then transmitted to banks as the worth of assets collapsed against debts. Decreasing expenditures on housing and durable goods affected industry negatively, and incomes fell further as a result of decreased production and employment. Irving Fisher (1933) described this as “The debt-deflation theory of great depressions.”
Smith, Vernon L. “Housing, Depressions and Credit Collapses.” Financial Times. 24 Jan. 2010. Web.
This article was published in Financial Times on January 24, 2010. This blog requires free registration.