SOS FIsher's Theory of Deflation Depression

Assuming, accordingly, that, at some point of time, a state of over-indebtedness exists, this will tend to lead to liquidation, through the alarm either of debtors or creditors or both. Then we may deduce the following chain of consequences in nine links:

(1) Debt liquidation leads to distress selling and to
(2) Contraction of deposit currency, as bank loans are paid off, and to a slowing down of velocity of circulation. This contraction of deposits and of their velocity, precipitated by distress selling, causes
(3) A fall in the level of prices, in other words, a swelling of the dollar. Assuming, as above stated, that this fall of prices is not interfered with by reflation or otherwise, there must be
(4) A still greater fall in the net worths of business, precipitating bankruptcies and
(5) A like fall in profits, which in a “capitalistic,” that is, a private-profit society, leads the concerns which are running at a loss to make
(6) A reduction in output, in trade and in employment of labor. These losses, bankruptcies and unemployment, lead to
(7) Hoarding and slowing down still more the velocity of circulation.

The above eight changes cause (9) Complicated disturbances in the rates of interest, in particular, a fall in the nominal, or money, rates and a rise in the real, or commodity, rates of interest.

(don't ask me where is cause #8, it is extracted from www.londonbanker.blogspot.com)

MyView

Whatever that is over expanded will contract (we do not need Paul Krugman, Roubini, Jim Rogers or Fisher to tell us that).

The credit expansion since the 1930s till 2010 in USA, almost 70 years is called OVER EXPANDED in credit (not printing of physical money) and it had come to a very dangerous level that any financial ratio can measure.

In 'pop' in 2008, and the Fed and US Government did what it is suppose to do, REFLATE the economy, or they will lose their jobs. So, 2009, 2010 and 2011, they have used almost all tricks they know: Bailouts, Stimulus, QEs, changing accounting policies, zero interest, mismanagement of regulators, rating agencies. How long can this goes on, until their sovereign debt pop?

And, if they are 'cunningly clever', they may buy lenders may buy themselves another year, then, comes DEFLATION (i.e. credit contracts).

So there you go (for fun only) :

Credit Creation - INFLATION (1970 to 2008)
Intervention - REFLATION (2009 to 2011/2)
Credit Contraction - DEFLATION (2013 to 2015)
after which

War - later on after war, HYPER INFLATION (2016 onwards)

I hope I got the sequence right. A lot of experts jump straight into Hyperinflation, which what USA hope for, paying back the debtor with toilet paper, which they wish.