Editing Business cycle (section)

=== Credit/debt cycle ===
{{main|Credit cycle|Debt deflation}}
One alternative theory is that the primary cause of economic cycles is due to the [[credit cycle]]: the net expansion of credit (increase in private credit, equivalently debt, as a percentage of GDP) yields economic expansions, while the net contraction causes recessions, and if it persists, depressions. In particular, the bursting of [[speculative bubble]]s is seen as the proximate cause of depressions, and this theory places finance and banks at the center of the business cycle.

A primary theory in this vein is the [[debt deflation]] theory of [[Irving Fisher]], which he proposed to explain the [[Great Depression]]. A more recent complementary theory is the [[Financial Instability Hypothesis]] of Hyman Minsky, and the credit theory of economic cycles is often associated with [[Post-Keynesian economics]] such as [[Steve Keen]].

Post-Keynesian economist [[Hyman Minsky]] has proposed an explanation of cycles founded on fluctuations in credit, interest rates and financial frailty, called the Financial Instability Hypothesis. In an expansion period, interest rates are low and companies easily borrow money from banks to invest. Banks are not reluctant to grant them loans, because expanding economic activity allows business increasing cash flows and therefore they will be able to easily pay back the loans. This process leads to firms becoming excessively indebted, so that they stop investing, and the economy goes into recession.

While credit causes have not been a primary theory of the economic cycle within the mainstream, they have gained occasional mention, such as {{Harv|Eckstein|Sinai|1990}}, cited approvingly by {{Harv|Summers|1986}}.