Corporate Liquidity and Financial Fragility: The Role of Investment, Debt and Interest

Jan Toporowski ()
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Jan Toporowski: Department of Economics, SOAS University of London, UK

No 169, Working Papers from Department of Economics, SOAS University of London, UK

Abstract: The paper addresses the issue of how debt deflation may arise in a capitalist economy with a sophisticated credit system. It argues that the standard argument of debt deflationists, that debt-financed investment causes a build-up of unsustainable investment, fails to recognise that debt is back by credit. A corollary of this is that the rate of interest is not a factor in investment decisions. Financial fragility is caused by heterogeneity of balance sheets, debt financed operations in financial markets and insufficient debt-financed investment, rather than too much such investment.

Keywords: Debt; Interest; Investment; Crisis (search for similar items in EconPapers)
JEL-codes: E32 E51 G01 G30 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2012-03
New Economics Papers: this item is included in nep-mac and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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