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It requires emergency aid to sustain confidence and prevent a collapse of demand.
One respondent told us they faced "a collapse of demand from public sector clients", while another was struggling with "a lack of salesmanship experience".
This is perfectly understandable behaviour on the part of consumers and firms but behaviour which has led to a collapse of demand, a collapse of output and the deep recession we are now in.So what are policymakers to do?
And the recession that followed had all of the features of what Richard Koo called a "balance-sheet" recession — a sharp decline in output and employment caused by a collapse of demand resulting from vast wealth destruction and painful de-leveraging by the private sector.
Because otherwise, people with savings would stock up on long-lasting goods (cars, furniture, canned goods) before the switch, which would cause a big temporary increase in demand, followed by a collapse of demand at the start of the new system.
The assessment was that there was a high risk of a collapse of demand, and that given the zero bound on monetary policy, fiscal stimulus was the only instrument readily available.
Similar(51)
But a collapse of consumer demand pushed Chrysler to close the factory roughly a year ahead of schedule.
"Deflation is in almost all cases a side-effect of a collapse of aggregate demand – a drop in spending so severe that producers must cut prices on an ongoing basis in order to find buyers," explained Bernanke.
There is a growing concern that deflation, including falling oil, food and commodity prices, has been caused by a collapse of global demand, especially from China, rather than a jump in oil supply.
"If the sovereign-debt crisis were to rebound massively, with a broad surge in risk premia and spillovers across countries, severe credit rationing and a collapse of domestic demand could ensue," the report said.
It would be environmental, or about resource shortages, or about runaway technologies, or something; it wouldn't be about a banking crisis and a collapse of aggregate demand, aggravated by bad monetary and fiscal policy.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com