NO.184 Principles of the Great Depression in the era of ultra-low interest rates. It will not always be a deflationary spiral.


Will the deflationary spiral be triggered in the era of ultra-low interest rates?


Great Depression cannot be handled by macroeconomics.


For the essence of macroeconomics, see the following article:

The Great Depression occurs when the economic cycle is cut off.
The economy is established by the economic cycle. Macroeconomics deals with an economy with an economic cycle.
Therefore, macroeconomics cannot handle the Great Depression.
An economy whose economic cycle has been interrupted collapses into a deflationary spiral.
This is the Great Depression. I hear that way. ... However, at very low interest rates, it may not become a deflationary spiral.

The Great Depression process


A large number of unemployed people appear. Unemployed people cannot consume because they cannot earn income. As a result, many companies cannot sell their products, and corporate performance deteriorates. Many companies with poor performance dismiss workers. Furthermore, the company goes bankrupt.
As a result, more unemployed people appear. Increasingly, consumption is getting worse, and business performance is getting worse in many companies. Further dismissal of workers and corporate bankruptcy are caused.

I think this vicious cycle is a great depression.

Deflation spiral process.


“Deterioration of the economy and falling prices are circulating.” I have heard that this is a deflationary spiral.

A stock market crash begins in the stock market. The bank will then go mad and collect the funds that it lends and return them to the central bank. Before the bank loan becomes uncollectible.
As a result, the amount of currency circulating in society is drastically reduced. This causes a fall in prices.

At this time, society is in a vicious cycle of the emergence of a large number of unemployed people and the deterioration of the economy. Due to the economic downturn, banks increasingly collect loans. Prices will fall further.

I think this is a deflationary spiral.

Will the deflationary spiral be triggered even at super interest rates?


However, as of 2019, ultra-low interest rates have continued for a long time worldwide. At this very low interest rate, the bank will not need to recover the money it has mortally lent.
The 2019 Great Depression does not fall into a deflationary spiral. Everyone is unaware of deflation. The Great Depression of the world economy may have already begun.

Cause of the Great Depression.


It will be an extreme expansion of the economic inequality.

World finance will probably incorporate a dynamism that allocates the majority of the world's wealth to a few wealthy people.
The vast majority of people are unable to receive an appropriate distribution of wealth, have insufficient income and cannot purchase goods.

Even if the person's nominal wage remains the same, the property price will soar and the person will not be satisfied with the purchase of the product because of the high rent.
It is a story in the news of November 2019. A story about a middle-class person who graduated from college in the United States. The person works for a company and is paid. However, only managers are profitable. There are an increasing number of employees who are paid but cannot pay rent.
While the economy is growing rapidly, the poor are expanding into the middle class of society.

Real wages are falling if nominal wages remain the same even though the amount of currency circulating in society at an extremely low interest rate has increased.
If the amount of currency distributed to society increases, real estate prices will rise. If people are unable to purchase goods to pay soaring rents, the performance of many companies will deteriorate.

If a company can't tolerate the worsening of its business performance, it will result in the dismissal of workers, bankruptcy, and the emergence of a large number of unemployed people.

Great Depression of 2019 



As many unemployed people begin to emerge, governments will further cut interest rates to prevent deflation.
As a result, the amount of money supplied to society will increase, rents will rise further, and people's consumption will become increasingly cold, leading to dismissal of workers and bankruptcies.
In addition, a large number of unemployed people appear.

If a large number of unemployed people appear, the economic cycle is cut off. The Great Depression begins.

The emergence of a large number of unemployed people, further reductions in interest rates, rising rents, and deterioration in corporate performance. This vicious cycle may be the Great Depression of 2019.
However, prices do not change.

The world economy in an ultra-low interest rate environment enters the Great Depression when interest rates are raised


See the next article.





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