In a closed economy, to every credit there must a corresponding debt.

The interest rate of lending 2000 yuan is 100 for two month.

Innovative financial instruments such as derivatives and credit default swaps enabled the distribution of risk throughout the economy.

This scalability was magnified by the use of credit default swaps (CDSs), which offered phony insurance against default.

Faced with credit losses, a central bank can either dig its way out through inflation or await recapitalization by taxpayers.

The growth of the lower middle class which had swelled by tens of millions of people in the preceding years was halted, and consumer debt exploded.

You can tell Americans and Europeans that they should rejoice over the boundless cheap goods and cheap credit that trade with Asia has supplied. But all their politicians seem to worry about is how some farmer or textile worker may lose their job.

Then there are various derivatives, such as credit default swaps, through which banks holding Greek debt have insured themselves against non payment. If CDSs are concentrated in particular financial institutions, these institutions could be at risk more so than the primary purchasers of Greek debt themselves.

You can tell Americans and Europeans that they should rejoice over the boundless cheap goods and cheap credit that trade with Asia has supplied.

Then there are various derivatives, such as credit default swaps, through which banks holding Greek debt have insured themselves against non payment.

Such targets could potentially be applied to credit, interest rates, exchange rates, asset and commodity prices, risk premiums, and or intermediate goods prices.

Jamaica is currently doing quite well under an International Monetary Fund Precautionary Stand By Arrangement , but still struggles with low growth.

Moreover, curtailing governments access to international credit (and, by extension, inducing more fiscal responsibility) could actually help more enterprising and productive borrowers.

The government effectively pays 50 of the mortgage interest and real estate taxes for upper income Americans, yet does nothing for the poor.

As a result, and in spite of the existence of a law approved to avoid precisely this kind of discrimination, people in debt have a harder time finding work and a harder time paying back their loans. In the image Discriminated against for being on .

The housing boom in the United States might never have reached the proportions that it did if homeowners had been unable to treat interest payments on home loans as a tax deduction.

Moreover, if financial institutions follow their own risk assessments when estimating appropriate capital cushions, the costs associated with such provisions decline.

More of the same in Angola, where last year an IMF investigation revealed that 4 billion disappeared from Angola's treasury over the past five years. It so happens that the Angolan government borrowed a similar sum from private banks in this period, mortgaging future oil revenues as security.

But no one knows who is holding how much of these derivatives, or whether they reduce or magnify the risk, because CDSs are not transparently traded on open exchanges.

If the problem is the moral hazard implied by being too big to fail, the solution is not to restrict pay, but to eliminate the hazard by forcing shareholders to issue more equity or lose their stock when banks debt starts to become risky. As Oliver Hart and I explained in a recent paper, this can be done easily, with a regulator intervening every time the credit default swaps on the financial institutions debt becomes too high.

As Oliver Hart and I explained in a recent paper, this can be done easily, with a regulator intervening every time the credit default swaps on the financial institutions debt becomes too high.

The first Great Contraction of course, was the Great Depression, as emphasized by Anna Schwarz and the late Milton Friedman. The contraction applies not only to output and employment, as in a normal recession, but to debt and credit, and the deleveraging that typically takes many years to complete.

The contraction applies not only to output and employment, as in a normal recession, but to debt and credit, and the deleveraging that typically takes many years to complete.

Although the housing boom in the United States which helped in this regard ended in 2006, consumer debt continues to grow, and America s Federal Reserve has been doing everything it can to encourage this.