A situation that arises when a government continuously attempts through its policies (particularly monetary policies) to drive up economic growth by stimulating aggregate demand, even when it comes at the cost of increased levels of debts and shrinking private savings. The spiral reflects both failed attempts to do so, while the cost has already been incurred in vain. A monetary death spiral manifests very high inflation rates accompanied with a downward trajectory for interest rates, productivity and economic growth.
A monetary death spiral is usually instigated by a wave of bankruptcy and a weakening or deteriorating credit rating that seems to be driving an economy into a black hole. This trap is set up and re-enforced by meaningless debt accumulation (“borrowing from Peter to pay Paul.”- so to speak)
It is known for short as MDS.
Comments