A gradually intensifying bad deflation. – If – assets are worth less, – debts, on the other hand, have remained the same in nominal terms, i.e. valued at current prices, – then it is economically correct to put one’s own balance sheet in order by reducing debts. – If, however, everyone simultaneously tries to bring their balance sheet into equilibrium by reducing debt or, in the case of private households, by increasing savings, the economy as a whole will collapse because no one will consume or invest any more. – If this self-reinforcing process is not stopped by economic policy, a “Great Depression” will result. – Fearing such a depression, the governments of almost all EU countries initiated measures in the course of 2008 and 2009 when, according to many experts, the euro zone was heading for a bad deflation. – See contagion effects, apple harvest close, deflation, good, deflation spiral, financial market stress, credit card fiasco, mark-to-model approach, ninja loans, pay-green initiative, rush to exit, shock, external, shocks, structural, stress test, subprime crisis, scenarios, exceptional,
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