Debt deflation theory and the Great recession

This paper aims to analyze the impact of debt-deflation processes in different phases of the Great Recession in the light of a reappraisal of received theory. In the first part we reassess Fisher’s seminal theory of debt deflation taking account of the recent evolution of capitalism. We argue that Fisher’s theory, aptly modified and updated, still provides valuable insights on the causes, consequences and policy implications of the Great Recession. In the light of this preliminary discussion, in the second part of the paper we analyze debt-deflation processes in the US and Europe focusing on their differential impact on the economy and income distribution. This analysis contributes to explain in particular why policy interventions succeeded to mitigate the debt-deflation process in the US while the austerity policies pursued in the Eurozone triggered a self-sustaining process of debt-deflation that is more pronounced in the peripheral countries.