Is finance an important part of macro?

I have an open mind on this question, but so far I don’t see much evidence that it is.  Let’s break this down into two parts:

1.  Does finance have an important impact on the path of NGDP.

2.  Does finance have an important impact on RGDP, through mechanisms other than its impact on NGDP?

A whole lot of miscommunication could be prevented if people would at least briefly frame their arguments in terms of these two questions, even if they prefer to spend 98% of their time ignoring these two questions.  That’s because it makes it much easier to understand what they are talking about.  For instance, consider a big drop in lending.  Is that a supply or demand shock?  Is it something that impacts RGDP directly, or only via it’s impact on AD?  It could be either, or both, and it’s often hard to tell from a person’s blog post which channel they are talking about. (Kudos to Arnold Kling for being crystal clear.)

Finance certainly has an impact on NGDP under a gold standard, as does drug smuggling, and also under a poorly run fiat regime, especially at the zero bound.  It’s not at all clear that finance has any impact under a well run fiat regime.  For instance, NGDP took off like a rocket after March 1933, even as much of the US banking system was shutdown.

Finance certainly might have an impact on RGDP, even if NGDP is well behaved, but I haven’t seen much evidence for that proposition.  At least not in the US.  For instance, RGDP took off like a rocket after March 1933, even as much of the US banking system was shutdown.  And no, I’m not repeating myself.

This post is partly in response to a recent post by David Glasner, which contains this observation:

Now, as one who has written a bit about banking and shadow banking, and as one who shares the low opinion of the above-mentioned commenter on Kaminska’s blog about the textbook model (which Sumner does not defend, by the way) of the money supply via a “money multiplier,” I am in favor of changing how the money supply is incorporated into macromodels. Nevertheless, it is far from clear that changing the way that the money supply is modeled would significantly change any important policy implications of Market Monetarism. Perhaps it would, but if so, that is a proposition to be proved (or at least argued), not a self-evident truth to be asserted.

Market monetarists have differing views of money.  For myself, I don’t find the aggregates to be at all interesting, and hence pay no attention to “money multipliers.”  I know there are people out there who are obsessed by the supposed implications of certain accounting relationships, but I try to avoid the subject as much as possible.  If it does arise I simply refer to Krugman’s brilliant dismissal of one pesky blogger—Krugman said “it’s a simultaneous system.”  In other words, accounting tells you nothing about causation.

Finance certainly looks important.  But that’s mostly because monetary policy has a huge impact on finance.  Since 99.999999% of people don’t know how to identify monetary shocks, they reverse the causation—assuming finance is impacting NGDP.  Remember 1931?  I thought not.  But how about 2008?

The focus on finance may have a downside that many people overlook.  Here’s a small passage from my Depression manuscript:

Enthusiasm for Hoover’s proposal was not confined to the NYT.  The June 27 [1931] issue of the CFC (p. 4635) enthused “President Hoover has electrified the whole world and possibly turned the tide of business depression”.   A “Hooverstrasse” was proposed for Berlin.  The British compared the proposal to a new armistice and suggested that the move ranked in importance with the U.S. entry into World War I.  Of course Hoover’s debt moratorium was subsequently shown to be ineffective in arresting the ongoing depression.  Nevertheless, the financial community had great hope for the plan, which indicates they saw the debt crisis as inhibiting recovery.

Between June 2 and June 27the Dow soared by almost 29 percent, and the next day’s NYT (p. 7N) suggested that “War Debt Plan Aids Commodity Prices. . . Sharpest Advance Since Last Summer Shown in Most Groups in Fortnight”.  Although the reaction of financial markets to the moratorium was unquestionably enthusiastic, the reasons are unclear.  Perhaps it was felt that the moratorium would reduce gold flows to countries with a high propensity to hoard (i.e. the U.S. and France.)  The June 27th CFC (p. 4653) suggested that Hoover’s goals were limited and that it was hoped that the agreement could lead to a climate of “international good will”.

On June 30th the NYT (p. 1) quoted a bank official as indicating that “it would be a mistake to over-emphasize the proposed debt adjustment as an economic factor in itself”.  Unfortunately, Hoover strongly opposed two initiatives that might have provided meaningful help for Germany; a coordinated international policy of tariff reduction, and a coordinated attempt to lower the world gold ratio through expansionary monetary policies.[1]  Those who have followed the recent events in Europe will see an obvious parallel.  The Europeans have worked hard to develop a debt relief plan for countries on the periphery, but have failed to take the one step that could actually make a big difference, an ECB policy aimed at faster nominal growth in the eurozone.

[1]  Hoover criticized the theory that deflation was resulting from a “maldistribution” of monetary gold stocks.

So they focused on debt relief thinking that would solve the problem, when the real problem was tight money.  Of course the ECB made the identical mistake in 2011-13.  Two European depressions, both caused by policymakers thinking finance was the problem when monetary policy was the real problem. Let’s hope it never happens again.

PS.  There is one important sense in which I pay more attention to finance than just about anyone else—the EMH.  The markets tell me the impact of QE.  I trust them more than anyone else, including myself.  As soon as the market start seeing QE as deflationary I’ll nominate Steven Williamson for a Nobel Prize.



27 Responses to “Is finance an important part of macro?”

  1. Gravatar of Dan W. Dan W.
    18. December 2013 at 08:11


    If financial problems can be solved by monetary solutions then could not one argue that there are no financial problem?

    Why cannot we simply observe that the PIGS made financial decisions that resulted in them accumulating too much debt? And if we can observe that then we can accept that the answer is for the debt to be refinanced, including the possibility that its value be renegotiated. I know why the lending nations and banks do not want this to happen but it is what should happen.

  2. Gravatar of SG SG
    18. December 2013 at 08:29

    Scott, in case you haven’t seen it, Christy Romer is out with another fantastic paper. A few highlights:

    “I predict that scholars in the future will face a . . . mystery when they try to figure out why the entire economics profession was so unproductive this past summer. I suspect very few papers were written between June and September. The explanation, of course, is that we all spent the summer obsessing about who would be the next Fed chair. “Of course it won’t be Larry Summers.” “My God, it is Larry Summers.” “Oh wait, I guess it’s not Larry Summers.” The drama in Washington caused the march of economic knowledge to grind to a halt as we spent our days gossiping and checking Google News for the latest updates.”


    “Switching to [NGDPLT] would have some important benefits. In the near term, it would be a regime shift. It would unquestionably shake up expectations. Since we are currently very far below a nominal GDP path based on normal growth and inflation from before the crisis, it would likely raise expectations of growth, and so help spur faster recovery. But one of the best things about a nominal GDP target is that it is also a good policy for the long run. It says that once nominal GDP is back to the pre-crisis path, inflation should be at the Fed’s target of 2 percent and real growth should be at its normal, sustainable level.”

    And my absolute favorite paragraph,

    “An essential lesson, though, is that monetary expansion can help ease the pain of deficit reduction. We have a good example of this from well before the recent crisis””way back in the early 1990s. When President Clinton decided to raise taxes to lower the budget deficit, he went out of his way to get Alan Greenspan, the Federal Reserve chairman at the time, to help counteract the possible negative effects on the economy. As Figure 11 shows, when Clinton addressed Congress in February 1993 to announce his deficit reduction plans, the Fed chairman was invited to sit next to the first lady in her box.”

    Can you believe that last story?!?! Yet more evidence, if any was needed, that Clinton >>>>>> Obama when it comes to actually understanding economics. Which is weird considering the overlap of their policy teams.

  3. Gravatar of Kailer Kailer
    18. December 2013 at 08:55

    I’m confused. Isn’t finance important for velocity? If I sell a T-bill to the Fed and then just hold the proceeds in my account at the Fed then how does that impact prices? Wouldn’t V fall to exactly offset the increase in M? I know there’s an expectations channel, but if no one expects an increase in lending why would they expect inflat- er higher NGDP growth?

  4. Gravatar of jknarr jknarr
    18. December 2013 at 09:05

    In the interest of defining terms, let’s just state for the record that finance is the contractual allocation of assets and liabilities over time. There is only one numeraire of contractual legal tender: currency for the public, currency and reserve for commercial banks (base money). All financial instruments are contracts to deliver this legal tender, including demand deposits.

    Part of the question, then is whether finance rearranges AD, and hence NGDP. I think that it does — people delay consumption into the future, and so hold financial assets today. Call these debts. Given that central banks absolutely control NGDP via the monetary base, so then delayed consumption (debt) is a call on future monetary base.

    Savers hope to preserve real consumption into the future, but have to accept nominal consumption. If debts fail to deliver in future real consumption terms, then additional monetary base will be demanded — or else the debts will default. Therefore, large debts imply large base money demand in the future; while small debts imply little base money demand.

    This affects monetary policy “effectiveness”: the marginal propensity for an additional dollar of base money to affect NGDP. Highly indebted economies will tend to hoard base money instead of spend (a low marginal propensity); while low-debt economies will have a high propensity to spend additional base money.

    So debt/finance affects the size and timing of monetary base creation, and hence the size and timing of NGDP. We can say that NGDP will very likely always return to trend in the we-are-dead-long-run-sense, as debts ultimately always liquidate. But debt creates a lot of volatility in base money and NGDP along the way.

    Again, the overwhelming advantage of NGDPLT is that it forces stable NGDP growth, and hence forces stable debt growth, and hence forces stable monetary base growth. Reducing volatility is a public good. Hence keeping aggregate debt at a managable level (say 1.5x NGDP) is a public good.

    A counterargument is Bernanke’s: “debt-deflation represented no more than a redistribution from one group (debtors) to another (creditors). Absent implausibly large differences in marginal spending propensities among the groups, it was suggested, pure redistributions should have no significant macroeconomic effects.”

    I don’t think that this is true in any useful way, unless you also say that the Great Depression was similarly inconsequential. As the head of the biggest debt-creation system on the planet (the Federal Reserve System), he has skin in the game as well.

  5. Gravatar of Brian Donohue Brian Donohue
    18. December 2013 at 09:15


    very good comment.

  6. Gravatar of Dan S Dan S
    18. December 2013 at 09:43


    One reason I love your blog is because I think you add a huge amount of clarity in framing the issues properly. Case in point with this post:

    “1. Does finance have an important impact on the path of NGDP.

    2. Does finance have an important impact on RGDP, through mechanisms other than its impact on NGDP?”

    I often get frustrated with (in my opinion overly) finance-minded types talking with macro because I feel like they play very fast and loose with terminology, causations, and models. Rather than stating clearly what they think the actual problem is (for example, demand), and connecting it to a consistent model, they will just toss out commentary Zero Hedge style about this rate or that spread or volumes of X or inflows and outflows in the Y market and rumors that some desk is doing this or that. It just becomes a chaotic mess that adds more heat than light, in my opinion. Then you, Scott, will just kind of lay out the situation clearly, and it becomes obvious then that a lot of the financial stuff is just noise.

    Side note, I’ve found that there are more “desks” at the average bank than there are subatomic particles in the universe.

  7. Gravatar of Dan S Dan S
    18. December 2013 at 09:49

    Also I had a very Sumnerian reaction to this piece by Martin Wolf:

    “Why Abenomics will disappoint: Signs are that deflation can be beaten but hopes for faster trend economic growth are optimistic”

    Obviously there are legitimate reasons for people to care about real growth of the Japanese economy, but the whole reason Abenomics caused such a stir in the econosphere last year was because people in the other developed countries are very interested in the basic question of whether the BoJ could create inflation at the zero bound. So the answer is yes, but the goalposts have been moved. To put it another way:

    2009: “the world’s economies need more demand/inflation, but at the zero bound, central banks can’t provide it!”

    2013: “the BoJ created demand/inflation even at the zero bound, but Japan has all these supply side issues that won’t translate it into growth.”

    OK so if demand never even really mattered in the first place why are we talking about it?

  8. Gravatar of Doug M Doug M
    18. December 2013 at 10:10

    Dan S,

    Finance types don’t speak the same language as economists. They use the same vocabulary but the words have different meanings.

    Investment to a financier is money put at risk.
    Investment to an economist is plant and equipment.

    Financiers like to look at the flow. Economics look at the level. They think they are talking about the same thinks, but really they are not.

    You think that that the financiers are imprecise with the language, but the financiers think the exact same thing about economists.
    The economists think that the financiers are caught up in irrelevancies… so many interest rates, spreads, etc. And the financier would say that it is all about these differentials and changes and dynamics.
    The Financier would say that the economist is caught up in irrelevancies, too. Aggregate demand… What the hell is aggregate demand. You can’t measure it. Heck you can’t even measure demand for a specific commodity. You can only see the price and quantity traded, so you can only see a very marginal picture of the supply/demand dynamic. You think you can draw a curve for various levels of quantity demanded for multiple prices? Absurd… and then you think you can abstract that and generalize it across the economy? ridiculous.

  9. Gravatar of Daniel Daniel
    18. December 2013 at 10:11

    Dan W

    Why cannot we simply observe that the PIGS made financial decisions that resulted in them accumulating too much debt

    Somehow, it’s treated as an article of faith that “too much debt” (whatever that means) leads to a doubling of unemployment in the space of a few months.

    Last time I checked, ipse dixit does not count as an argument. And the onus is on you to prove that “too much debt” is what leads to recessions (and not wage/debt stickiness).

  10. Gravatar of Dan S Dan S
    18. December 2013 at 10:23

    Doug M,

    Definitely there is a communication and talking-past-each-other problem. I think I fell into the econ side of this debate because my brain is just wired that way, and finance people’s brains are just wired that way, and there might not be a whole lot we can do to bridge the gap.

  11. Gravatar of Doug M Doug M
    18. December 2013 at 10:25

    I would say that finance has a huge impact on investment demand.

    I will engage in a new venture if the the expected profitability of that venture is greater than my financing costs plus a premium for the uncertainty of the venture.

    This has both real and nominal effects, as the venture will pay off in nominal dollars, but the financing costs will have rational inflation expectations embedded into them.

    The finance industry also has the role of diversifying some of the risk and lower the risk premium required to start a new venture.

    Notes on risk: there is a limit to which diversification can actually lower risk.
    Leverage creates its own set of risk factors, with a strong asymmetry. The asymmetry of credit risk is frequently unappreciated, which can lead to surprise “tail risk” events.

  12. Gravatar of Vaidas Urba Vaidas Urba
    18. December 2013 at 11:18

    A lot of confusion results from the fact that both the availability of capital and the availability of reserves are constraints on banking. However, the nature of these constraints is different. The availability of capital is a real constraint that determines the real size of the banking industry (the ratio of nominal bank assets to nominal GDP). The availability of reserves is a nominal constraint that determines the nominal GDP.

  13. Gravatar of nickik nickik
    18. December 2013 at 12:10

    @Dan S

    The reason demand increas did not help japan real growth is because japans montary policy was not that bad. The have more or less ajusted to the condidtions.

    The had 0% NGDP growth for 20 years. If the would have that, but stable then I think it would be as good as 5% NGDP growth (probebly not as good because of pre recession trend).

    However the BoJ did not have any constants, sometimes the had demand deflation, and then they went back on trend. But overall the economy of japan got used to deflation and there growth therefore was not horribly bad.

    Changing to a 3% NGDP level target or even a 0% NGDP level traget would raise there real growth a bit, but not as much because the major problem in japan is supply not demand.

  14. Gravatar of Chuck E Chuck E
    18. December 2013 at 12:45

    Excellent posts by Jknarr and Doug M.

  15. Gravatar of ssumner ssumner
    18. December 2013 at 13:44

    Dan W, You said:

    “If financial problems can be solved by monetary solutions then could not one argue that there are no financial problem?”

    Yes, that’s true. And if it is true that only SOME finance problems can be solved with stable money, then finance would have fewer problems with stable money, but not zero problems. Generally things are not all or nothing. It’s absurd to think all finance problems are monetary. And it’s absurd to think none of the problems are monetary.

    Thanks SG.

    Kailer, Lending does not cause more NGDP, expansionary monetary policy does (the hot potato effect.) Yes, finance does effect V, but not M*V if the central bank is competent.

    Thanks SG.

    jknarr, You were off to a very good start, but this isn’t right:

    “Therefore, large debts imply large base money demand in the future; while small debts imply little base money demand.”

    The main determinant of base demand is NGDP growth rates, not debt.

    Thanks Dan S, and good point about Japan.

    Doug, Good points. But note that I don’t claim to have a grand theory of banking. I know that I don’t understand banking well enough to have such a theory. But it seems to me that some finance types are dismissive of things like AD without even knowing what it is. They talk about the macroeconomy without a theoretical framework. Recall the famous Keynes quote about how practical people latch on to defunct models.

    nickik, There’s some truth in that, but note that RGDP growth this year has been well above trend. So the effect may be small, but it’s not non-existent. And it’s a free lunch because inflation is still close to zero. The interest rate has stayed low even as NGDP has risen, in contrast to what the opponents predicted.

  16. Gravatar of jknarr jknarr
    18. December 2013 at 15:17

    I’m not sure why — it follows from: “If debts fail to deliver in future real consumption terms, then additional monetary base will be demanded “” or else the debts will default. Therefore, large debts imply large base money demand in the future; while small debts imply little base money demand.”

    So if aggregate debt contracts cannot scrape together the cash flow in real terms, then it must get hold of it in nominal terms, or default. This is the demand side of base money creation: it’s never the NGDP-maintaining good offices of the central bank that summons up base money, it’s usually a default crisis and demand for cash. (Which the central bank provides as a lender of last resort et al.)

    Think of it in terms of your monetary offset. If the Federal government were to “stimulate” to the tune of $10 trillion debt-fueled public works, then the economy creates leverage and debt.

    You would have the Fed offset this, so NGDP little changed, debt much higher, and much less monetary base: leverage.

    Monetary offset works in reverse. Increasing debt levels since the 1980s were offset by low base money provision. Now, decreasing debt levels are offset by large base money provision. (High-leverage economies typically are starved of base money or else they would not be leveraged — look at the PIIGS and Japan).

    We can argue that this is happening now — the Fed is absorbing debt and providing base money. Debt is a claim on future NGDP, so all debt will be ultimately paid in future NGDP. If future NGDP is insufficient, then base money will be produced to make the debt whole.

    We could be dealing with semantics, then, as we both state that base money is demanded by NGDP. How about that NGDP needs to be drastically larger to cover existing debt liabilities, and that the base money will be demanded by this large NGDP?

  17. Gravatar of Saturos Saturos
    18. December 2013 at 17:32

    One day we’ll all understand why Scott Sumner cares more about the EMH than everyone else. Or so I hope.

  18. Gravatar of Dan W. Dan W.
    18. December 2013 at 18:16

    Here is a paradox that I could use help understanding.

    The Macro perspective seems to be that there is no such thing as excessive debt. Perhaps this is because in aggregate one man’s loss is another man’s gain. When one man pays interest another man receive income. When one man makes a distressed sale of an asset another man makes an opportune purchase.

    Make one indebted person 1 million indebted persons and it is all the same, right? The aggregate economy is just a balance sheet and assets and liabilities and payments and receipts all equal, no matter the actual levels.

    OK then explain why it is such an awful thing for a nation to respond to a debt crisis, such as the MBS meltdown, by allowing debt and assets to be repriced lower? Would not one man’s loss be another man’s gain?

    Of course we do know the answer which is that the politically powerful do not want to see their assets repriced lower. And as they say, he who has the “gold” makes the rules.

    But if we were to be purely logical about the situation it begs the question of why so much effort is made to justify monetary inflation to solve a debt crisis when the easy answer is to reprice the debt and to resell the assets. And even if the assets sell for pennies on the dollar one man’s loss is another man’s gain, right?

  19. Gravatar of Daniel Daniel
    19. December 2013 at 02:02

    it begs the question of why so much effort is made to justify monetary inflation to solve a debt crisis

    You are one dense cookie.

    Fact no 1 – there is a thing called “stickiness”. It affects (among other things) wages and debts.

    Fact no 2 – if NGDP falls, by definition, it means that there is less money to go around

    Fact no 3 – if there are less money to go around, wages and debts will have to be renegotiated.

    Fact no 4 – due to above-mentioned stickiness. said “renegotiation” does not go smoothly at all – and the end result is an decrease in hours worked (also called “unemployment”), a decrease in output and “a debt crisis”.

    In other words – you’ve got it all backwards, bro.

    Like I said above – you take it to be self-evident that “too much debt” causes a recession. It is not.

  20. Gravatar of Dan W. Dan W.
    19. December 2013 at 05:58


    Based on Facts 1 and 3 debt plays an integral role in increasing the severity of a recession. All that remains is to explain Fact 2. Why does NGDP fall?

    Of course there are many explanation for why NGDP declines and I submit to you that one cause is a slowdown in debt accumulation. Debt expansion makes consumers feel wealthier and promotes spending. But then consumers feel the need to dial back their debt levels and this recalibration leads to a slowdown in spending.

    If debt levels become excessive – if consumers buy too much house – then the dial back becomes all the more pronounced.

    Has there ever been a financial crisis that was not linked to debt, margin and leverage?

    If liar loans and zero down loans never existed would there have been a mortgage meltdown in 2008?

    By the way, the Macro article of faith in “wage stickiness” is a convenient ideology but is it really true? My personal experience is that my annual income can fluctuate 200% or more year to year and I have adjusted my lifestyle accordingly and my personal spending can be even more variable. Of course that is possible because I make it a personal practice to maintain low debt. Higher debt decreases financial flexibility and sets up more dominoes to fall. But even so is it the job of the central bank to protect people and institutions from debts that cannot be paid?

  21. Gravatar of jknarr jknarr
    19. December 2013 at 07:13

    Daniel, wage stickiness isn’t the only causal stickiness out there. Debt is more than 3x more ubiquitous than wages. Debt is as rigid an obligation as it comes, and bankruptcy is the only way to make it flexible (but is not scalable).

    Firing and hiring is child’s play compared with violating debt covenants. Debt is a much more constraining factor for companies, households, and governments. It’s why the economy is only growing at 3% NGDP after five years: the debt remains.

  22. Gravatar of ssumner ssumner
    19. December 2013 at 09:01

    jknarr, Debts are mostly repaid with checks. Yes, checks require a tiny amount of base money, but the demand for base money is basically currency and ERs.

    Dan W, Matters for what? Excessive debt matters a lot in some respects–default is costly and inefficient. It doesn’t matter for NGDP if monetary policy is effective and it has only second order effects on RGDP.

  23. Gravatar of ssumner ssumner
    19. December 2013 at 09:03

    jknarr, Maybe I misread your point. If you are saying more base money is needed to prevent default because it props up NGDP, I agree. But the actual debt repayment transactions don’t use much base money.

  24. Gravatar of Doug M Doug M
    19. December 2013 at 09:45

    Dan W.

    “The Macro perspective seems to be that there is no such thing as excessive debt.”

    I think you are correct that this is an oversight. Macro theorists also say that in the long run money is neutral… but it isn’t. And debt is part of the reason that it isn’t.

    In the classic thought experiment, if everyone woke up and had twice as much money as they did the night before, in the thought experiment, the prices and wages should quickly re-balance and everyone is in the exact same place as they were before that money was created.

    But, that isn’t true, because the existing debts do not re-denominate with this money infusion. Real debts fall and debtors are better off than non-debtors.

    But go the other way, and hit the world with a monetary contraction! Suddenly there are a whole heck of a lot of people who are underwater on there debts. It would be chaos.

    Money is not neutral, and the economic response to changes in the money supply is asymmetric. High levels of debt create a hanging instability.

  25. Gravatar of jknarr jknarr
    19. December 2013 at 09:56

    Scott, what is your stance on Fishers debt-deflation?

    I would have imagined that greater debt exaggerates downside NGDP; which requires greater reflation effort as a cure — and hence more base money. Sounds like the world after 2008. QED, more debt = more pent-up demand for base money (to pay off debt in reflated NGDP terms).

    Cash or charge or check?! Transactions ain’t the point — base money is. Think MOE versus MOA. Currency is the ultimate MOA for NGDP — at the end of the day, debt contracts are obligations to deliver legal tender.

    Also, it’s more than in-court bankruptcy costs: there are immensely, huge, sticky effects to systemic defaults. I’m surprised that the profession still treats it as if it is just court- and legal- costs.

    As I said, default is not scalable, whereas wage problems generally are. Banks understand this, hence they demand huge base money reserves as capital when threatened by systemic defaults — not to clear distressed debt transactions, but to dilute the MOA.

    It’s remarkable to me that so much attention is paid to wage stickiness, but so little to debt stickiness: the economics profession is still stuck gnawing on the old bones of the 1970s, and failing to see the new- and lively- debt elephant in the room.

  26. Gravatar of ssumner ssumner
    19. December 2013 at 20:05

    Jknarr, Debt is clearly important under the gold standard. Much less so under a well run fiat money regime, where the central bank can offset any effects on NGDP.

  27. Gravatar of Daniel Daniel
    20. December 2013 at 03:08

    Dan W,

    As usual – you are completely missing the point. And you keep asking the wrong questions.

    Has there ever been a financial crisis that was not linked to debt

    The relevant question would be – Has there ever been a financial crisis that did not lead to a recession ?

    And the answer would be “yes”. That alone is enough to falsify your theory.

    the Macro article of faith in “wage stickiness” is a convenient ideology but is it really true.

    Yes, it actually is true. The fact that you cannot be bothered to look up the relevant facts speaks volumes.

    and I submit to you that one cause for why NGDP declines is a slowdown in debt accumulation

    When all you have is a hammer, everything looks like a nail.

    Debt expansion makes consumers feel wealthier and promotes spending. But then consumers feel the need to dial back their debt levels and this recalibration leads to a slowdown in spending.

    Spare the austro-sadist boilerplate. Please. The “hangover” explanation of the business cycle never made any sense.

    But hey, what do I know ? Apparently, in your corner of the world – when people “feel wealthier”, they go out looking for jobs. When they “feel the need to dial back their debt levels” they also feel the need to go on vacation. By the millions. All at the same time.

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