Definition of Debt deflation:
Debt deflation is a concept that pertains to the effects of debt on the price of properties, goods, and services. Borrowers will typically experience decreasing property values from debt deflation, which can lead to an array of other negative repercussions. In the broad market, debt deflation generally refers to a theory that identifies total outstanding debts as a catalyst for price decreases across a country’s economy.
In contrast to inflation, which is a period of rising prices, deflation is characterized as a period of falling prices. Debt deflation occurs when a debt bubble has burst and prices fall. It can have broad-ranging market and economic effects. For example, real estate and specifically property values can be highly susceptible to debt deflation, which can cause distress for mortgage borrowers.
A theory developed in 1933 by Irving Fisher to explain the cause of economic depressions which points to over-consumption, over-spending, and under-investment that leads to destabilization in the relationship between debt and deflation. The combination of increasing debt and decreasing prices that results an increased value of debt leading to financial distress.
How to use Debt deflation in a sentence?
- Declining property values can lead to underwater mortgages, even foreclosures, when debt deflation strikes the mortgage industry.
- Debt deflation, which often occurs after a debt bubble has burst, happens when too much debt depresses the value of properties, goods, or services.
- Debt is an important component that can help to stimulate economic growth for both businesses and consumers.
- Mortgage debt is susceptible to debt deflation because it is a large portion of the total debt outstanding overall.
Meaning of Debt deflation & Debt deflation Definition