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During this transition period the values of debts, assets, and prices of goods and services were expressed in euros as well as in the local currency.
Similar(59)
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.
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.
In deflation the nominal value of debts remains fixed even as nominal wages, prices and profits fall.
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.
More tailored steps are needed: debt forgiveness, writedowns, extended low interest rates, or inflation, which reduces the real value of debts.
He argues that this could be done through a policy of tolerance for higher inflation, which would reduce the value of debts over time.
Alternatively, inflation is a salve that helps mitigate the pain of mistakes (by making it easier to reduce the real value of debts or wages, for instance).
Even if incomes and prices do not actually decline, they will fall short of their previous trajectory, while the money value of debts remains unchanged.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com