chapter  1
11 Pages

Can "It" Happen Again?

For every debt-income ratio of the various sectors we can postulate the existence of a maximum decline in income which, even if it is most unfavorably distributed among the units, cannot result in a cumulative deflationary process, as well as a minimum decline in income which, even if it is most favorably distributed among the units, must lead to a cumulative deflationary process. The maximum income decline which cannot is smaller than the minimum income decline which must lead to a cumulative deflationary process, and the probability that a cumulative deflationary process will take place is a nondecreasing function of the size of the decline in income between these limits. For a given set of debt-income ratios, these boundary debt-income ratios are determined by the relative size of the economy's ultimate liquidity (those assets with fixed contract value and no default risk) and the net worth of private units relative to debt and income as well as the way in which financial factors enter into the decision relations that determine aggregate demand.