Deflation and the Decoupling of Economy and Financialization

Abstract

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The paper discusses the decoupling between the real economy and financialization, highlighting how the financial crisis of 2008-2009 has shown that the development of financialization is not irreversible. Despite the perception of zero risk and out-of-market real estate values, the crisis has revealed the weakness of the real economy. Deflation is identified as a new enemy, appearing when debt exceeds income, depressing the value of capital and creating problems for production and sale. Olivier Blanchard’s proposal on Eurobonds aims to strengthen the euro and improve the EU’s financial stability but presents political and fiscal challenges. Financial speculation, fueled by private debt, weakens the real economy and creates a decoupling between the financial market and the real economy. The financial crisis of 2008-2009 did not solve the problem but only mitigated the impact of private debt. The resistance of economic systems to speculative play depends on the decline of global economic development and the ability to absorb downward shocks in financial values. As regards the future prospects, it is essential that economic policies focus on reducing private debt and stabilizing financial markets in order to avoid further crises. In addition, the implementation of instruments such as Eurobonds could help strengthen the European economy, but it requires significant political and fiscal commitment. The main challenge will be to find a balance between economic growth and financial stability, ensuring that the real economy is not sacrificed in favor of financial speculation.