Part 10/13:
The core issue is too much debt, created by credit expansions not backed by sufficient cash flows. When debt service becomes unsustainable, defaults cascade, asset prices collapse, and systemic failures ensue. Andrew emphasizes formulas—if cash flows don’t cover debt, and assets are illiquid or overvalued, crisis dynamics are triggered.
The Role of Central Banks
Historically, central banks have responded to crises by injecting liquidity. During the 1930s, the Federal Reserve was reluctant, worsening conditions. Today, central banks, while more nimble, sometimes overextend, leading to asset bubbles or inflationary pressures, as seen in recent years with massive monetary easing.