As they deleverage their balance sheets they'll be able to borrow and grow again.
Another is that even as European banks deleverage, they are trying to build up their liquidity buffers.
The lesson is that leverage is neither good nor bad, but there's a time for leverage and another time for deleverage.
Substituting Trills for conventional debt helps deleverage the government, something whose importance has become very clear with the debt crisis in Europe.
Italy's public sector is trying to deleverage at the same time as the private sector is cutting spending, producing a nasty recession.
However, paying down a debt is not the only way to deleverage.
In 1987 and 1989 FORBES quoted you as saying it was time to deleverage, to get out of debt, to sell common equity.
Global central bankers have determined that the currency devaluation path is the least bad choice in order to deleverage the unsustainable debts in the system.
They are all, to use the hideous jargon, attempting to deleverage.
Also, to state the bloomin' obvious, although the government is still borrowing near record amounts, it too is desperately trying to deleverage, by squeezing public spending.
So you had a number of things that freed up cash flow for consumers, and it allowed them to not only deleverage their balance sheet but continue to spend, albeit on different items.
Rather than try to induce one of the most indebted private sectors in the world to take on more debt, Mr. Osborne would do better to focus his fiscal strategy on helping the private sector deleverage.
Briefly, these programs are intended to mitigate what have been, at times, very severe strains in short-term funding markets and, by providing an additional source of financing, to allow banks and other financial institutions to deleverage in a more orderly manner.
Given European banks' extensive exposures across the Atlantic, and given the political pressure on them to deleverage anywhere but in their domestic market, the temptation for the banks to liquidate in the U.S. and let the American economy take the strain is huge.
What they try and do is actually shrink - to use the ghastly phrase, deleverage - and when banks deleverage and when money isn't going to households and businesses those households and businesses can't spend, they can't invest and frankly the economy can't grow.
So if the urge to deleverage is the new and somewhat depressing (in both senses), deflationary and overwhelming economic reality, the question that follows - and is broadly the one raised by Mr Carney - is whether inflation targeting provides the right kind of stability for this era.
Putting his forecasting abilities to use, Hatzius told Forbes the U.S. will narrowly avoid recession, as the private sector continues to deleverage and the housing sector remains under water (note the poor performance of JPMorgan in its recent earnings and the expectations that Citi and others will disappoint as well). (Read Occupy Wall Street, JPMorgan, And The Fall Of The Banks).
FORBES: Goldman's Hatzius: U.S. To Avoid Recession As Bernanke Unveils QE3, Europe Doomed
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