Part 9/12:
During expansion, high debt levels and abundant credit can fuel economic growth but risk creating bubbles.
When debt levels become unsustainable, a crash occurs—a debt crisis—leading to recession or depression.
Post-crisis, deleveraging occurs, often necessitating austerity (spending cuts) or monetary expansion to rebuild confidence and re-initiate growth.
Historical examples include:
The Great Depression (1929)
The European debt crisis (2010)
The Japanese asset bubble burst (1989)
The 2008 global financial crisis
In each case, managing debt cycles and credit expansion is critical for restoring stability.
Balancing Act: Achieving Economic Stability
Successful management of the economy involves balancing: