The title article of this collection suggests that a financial crash is preferable to a long process of debt deflation. A temporary failure of banking institutions may have less adverse impact on the economy than an extended period in which households and companies – in the case of households, burdened by excessive debt due to the inflation of the housing market, and in the case of companies, equity funds and merger and acquisition activity forcing companies into debt – use significant parts of the incomes to reduce their debt. Such debt deflation means that money which firms throw into circulation in the process of production and exchange does not all come back to them in the form of revenue, because households and other firms use it to repay debt. The resulting financial deficit of private business requires financing with further debt. In effect it becomes very difficult to escape excessive debt.

My title article suggested that the non-catastrophic, market alternative to debt deflation is a policy of inflation, ensuring that the growth of prices and wages is sufficiently high to reduce debt to more manageable proportions. But despite the bold claims of central bankers, it is not they who control inflation with their monetary policy, but inflation that controls central banks.