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Joseph Weisenthal at Business Insider describes this as a “magical threshold of debt.” But there’s nothing magical about it.
ReplyDeleteAs I’ve explained before, the precise mechanism for this isn’t well understood. I suspect it may largely be an effect of signaling. Very high levels of debt indicate the economy has broken down and that government’s room for ameliorative spending may be reaching its limit, which causes further private contraction. So you get into a reflexivity trap.