Matt Rognile and I’m going to change his punctuation to make it a sentance:
So yes, deleveraging can be very bad for the economy; But this is only because monetary policy doesn’t adjust enough to match the market.
Click the link for a long explanation. Short explanation is that for any level of saving/spending behavior, there’s some correct real interest rate to match it. If excessive saving (“deleveraging”) is causing a recession rather than an investment boom, it’s because the real interest rate isn’t low enough. The nominal interest rate can’t go below zero, but the real interest rate can go wherever policymakers want it to go. Lately, the fact that voters react negatively to inflation has been bouncing around as an excuse for poor policy in this regard, but if you look around it’s obvious that voters aren’t exactly enthusiastic about years-long recessions either.