While we cannot say for certain tha

While we cannot say for certain that deleveraging will occur today, we do know empirically that deleveraging has followed nearly every major financial crisis in the past half-century. We find 45 episodes of deleveraging since the Great Depression in which the ratio of total debt relative to GDP declined, and 32 of them followed a financial crisis. These include some instances in which deleveraging occurred only in the public sector; others in which the private sector deleveraged; and some in which both the public and private sectors deleveraged simultaneously (See Appendix B: Historical episodes of deleveraging). The historic episodes of deleveraging fit into one of four archetypes: 1) austerity (or “belt-tightening”), in which credit growth
lags behind GDP growth for many years; 2) massive defaults; 3) high inflation; or 4) growing out of debt through very rapid real GDP growth caused by a war effort, a “peace dividend” following war, or an oil boom.