Irvin Fisher’s Debt-Deflation Model
Following the stock market crash of 1929 and the ensuing Great Depression, Fisher developed a theory called debt-deflation. According to the debt deflation theory, a sequence of effects of the debt bubble bursting occurs: * Debt liquidation and distress selling. * Contraction of the money supply as bank loans are paid off. * A fall in the level of asset prices. * A still greater fall in the net worth of businesses, precipitating bankruptcies. * A fall in profits. * A reduction in output, in trade and in employment. * Pessimism and loss of confidence. * Hoarding of money. * A fall in nominal interest rates and a rise in deflation adjusted interest rates.
Endogenous / Exogenous Money Theory
In economics, endogenous money refers to the theory that money creation occurs endogenously (produced or determined within the system) to an economy, rather than being determined by external forces. Endogenous money is a heterodox economic theory with several strands, mostly associated with the Post-Keynesian school. The mainstream economic theory of money creation is via the money multiplier, which is rejected by endogenous money theorists.
Bond Yield-to-Maturity
Imagine you are interested in buying a bond, at a market price that's different from the bond's par value. There are three numbers commonly used to measure the annual rate of return you are getting on your investment: Coupon Rate: | Annual payout as a percentage of the bond's par value | Current Yield: | Annual payout as a percentage of the current market price you'll actually pay | Yield-to-Maturity: | Composite rate of return off all payouts, coupon and capital gain (or loss) |
(The capital gain or loss is the difference between par value and the price you actually pay.)
The yield-to-maturity is the best measure of the return rate, since it includes all aspects of your investment. To calculate it, we need to satisfy the same