Question

Explain beautiful deleveraging

Answer 1

ANSWER: The economy can be deleveraging when there is simultaneous reduction of debt levels in multiple sectors. This can be termed beautiful if economy maintain the balance between inflation and deflation. A beautiful deleveraging balance the three options i.e. there is a some amount of debt restructuring, there is a some amount of austerity, and there is a some amount of money printing. Firstly, the debt burden can be reduced through cutting spending; debt must be reduced; central bank should increase the tax from the rich; and print more money to make up for the credit loss. When all these are performed in the right mix, it doesn't produce too much depression or too much deflation. The growth is slow, however it is positive. At the same time, ratios of debt-to-incomes disappears, thus is called a beautiful deleveraging