Irving Fisher was one of America's greatest mathematical
economists and one of the clearest economics writers of
all time. He had the intellect to use mathematics in virtually
all his theories after he had clearly explained the central
principles in his own words.
Fisher demanded that Congress take back its
Constitutional money power that had been usurped by
the commercial banks. He suggested that the public
debt be redeemed under the Congressional money
power withtout inflationary results.
His "100 percent money" system required that demand
deposits be backed 100 percent by federal funds rather
than fractional or no reserves, on grounds that such a
policy would prevent bank failures and control large
business cycles ("booms and recessions").
According to Fisher's theory, a sequence of effects of
a debt bubble bursting occurs:
1. Debt liquidation and distress selling.
2. Contraction of the money supply as bank loans are
paid off.
3. A fall in the level of asset prices.
4. A still greater fall in the net worth of businesses,
precipitating bankruptcies.
5. A fall in profits.
6. A reduction in output, in trade and in employment.
7. Pessimism and loss of confidence.
8. Hoarding of money.
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