Daily Archives: November 1, 2008

Market Failure – Deflation

A term no one wants to hear from economists.  Especially when the comparison is to the burst of the Japanese economy in the 1980’s or the Great Depression.

Banks and other financial institutions are reckoning with hundreds of billions of dollars worth of disastrous investments. As they struggle to rebuild their capital, they are halting loans to many customers, demanding swift repayment from others and dumping assets — homes sold out of foreclosure, investments linked to mortgages and corporate loans. Selling is pushing prices down further, making the assets left on balance sheets worth less, in some cases prompting another round of sales. “You get this adverse feedback loop where assets keep falling in value,” Mr. Barbera said. “You’re essentially putting big downward pressure on the global economy.”

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Filed under Market Failure, Policy