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Exact(16)
And, because inflation erodes the real value of debts, people's debt burdens would shrink.
This ratchets up the value of debts, and makes it tempting to postpone every purchase, creating a depressionary trap.
In deflation the nominal value of debts remains fixed even as nominal wages, prices and profits fall.
Haircuts range widely but are typically between a third and a half of the value of debts.
Those very spending cuts cause prices to drop, and force up the real value of debts, creating a vicious spiral.
Weak growth and falling prices are a toxic combination for highly indebted countries, because they raise the real value of debts while cutting national output.
Similar(42)
In those circumstances, monetary policy becomes ineffective because the value of debt increases year by year.
In fact, even the value of debt itself is not constant.
Inflation helps reduce the total debt stock over time, by reducing the real value of debt.
One main feature of inflation is that it reduces the real value of debt.
Deflation also raises the real value of debt, of which companies have plenty.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com