Riding out the deflation storm

A secular bear market is unlikely to end before global debt deleveraging is completed.

The biggest brake on households and government spending in America and Europe (and also Australia) is a large debt overhang from the global financial crisis. After the mid-1990s households went on a spending spree funded by mortgages and credit cards. When the music stopped in 2007 home prices fell (except in Australia) leaving many households with negative equity and banks on the verge of collapse. As tax revenues fell, unemployment relief rose and banks got bailed out by the state, public debt escalated to record heights.


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