About

It is almost obvious that there is something going wrong in the economy.  We are noticing bubbles that are coming and going which are destroying the economy on a more frequent basis.  There is talk that we are on the verge of the last and financial bubble which will be another crisis.  This is all due to the credit cycle which goes through two major areas.  There is a short term debt cycle and a long term debt cycle which is more on a national level.  Because of those cycles our economy reaches a point of unsustainability. It is at this point the country collapses or a major deleveraging occurs.  This is not a new process and happens to every country and usually on a rather verified schedule.  Market Researches like the Intelligent Speculator are known for reading these deleveraging cycles and personally making great profit off the speculations. So lets go over the different ways a country can deleverage its debt and get back on track.

The first area is Austerity.  This is the most simple and easy way to deleverage and eliminate the debt cycle.  This means simply that we stop spending as much and start paying down debt. Unfortunately, due to the way our economy works this actually ends up making the situation worse because the ability to pay off the debt is impossible so it puts our economy into a depression.

The next way is to do a full on Debt Restructuring.  This means that if you have a loan and will most likely go bankrupt and pay none of it, the loan will be renegotiated or in some cases eliminated altogether.  They may just lower the rates and allow a new loan to be created at a rate and amount that can be paid. Taking a small loss is better than a total loss. This if done by itself usually leads to deflation of the economies currency.

Another area to deleverage an economy is through Redistribution of Wealth.  This can be done by taking the wealthy and giving more assistance to the less fortunate and increasing the social assistance programs of a country.  This also leads to deflation and a generally shrinking of growth in the economy as motivation to be successful waines.

The last way to deleverage an economy is the central bank of the economy to print money.  This usually works in short term obsessions but in a full blown deleveraging this in and of itself only leads to deflations of the currency if is not able to offset the fall in credit. 

Each of these areas should be used simultaneously to create a well done deleveraging.  Any of these alone are usually unsuccessful and policy makers need to use the correct correlation of these techniques to bring our economy back.