Balance Sheet Recession Analysis refers to an economic phenomenon where a prolonged economic downturn occurs due to the significant reduction in the net worth of households and businesses, primarily following a period of excessive debt accumulation. During such recessions, entities focus on paying down debt rather than engaging in consumption or investment, leading to a stagnation in economic growth. This situation is often exacerbated by falling asset prices, which further deteriorate balance sheets and reduce consumer confidence.
Key characteristics of a balance sheet recession include:
In summary, balance sheet recessions highlight the importance of financial health in driving economic activity, demonstrating that excessive leverage can lead to long-lasting adverse effects on the economy.
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