ABSTRACT
This chapter provides a model of how the conditions compatible with a debt-deflation process are generated. It presents some observations on financial variables and note how these affect the response of the economy to initiating changes. The chapter examines what effect the increase in the relative size of the federal government since the 1920s has had upon these relations. In the winter of 1933 the financial system of the United States collapsed. This implosion was an end result of a cumulative deflationary process whose beginning can be conveniently identified as the stock-market crash of late 1929. In the spring of 1962 a sharp decline in the stock market took place. The 1962 event did not trigger a deflationary process like that set off in 1929. A comprehensive examination of the issues involved in the general problem of the interrelation between the financial and real aspects of an enterprise economy cannot be undertaken within the confines of a short paper.
