Main Entry: dé·jà vu
Pronunciation: ˌdā-ˌzhä-ˈvü, -ˈvue
Etymology: French, adjective, literally, already seen
1 a: the illusion of remembering scenes and events when experienced for the first time b: a feeling that one has seen or heard something before
2: something overly or unpleasantly familiar
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“American consumers and businesses relied on cheap credit, the former to purchase consumer goods such as automobiles and furniture [houses] and the latter for capital investment to increase production. This fueled strong short-term growth but created consumer and commercial debt [mortgages]. People and businesses who were deeply in debt when price deflation occurred or demand for their product decreased often risked default [missing payments] Many drastically cut current spending to keep up time payments, thus lowering demand for new products [recession]. Businesses began to fail as construction work and factory orders plunged.
Massive layoffs occurred, resulting in unemployment rates of over 25%. (US) Banks which had financed this debt began to fail as debtors defaulted on debt and depositors became worried about their deposits and began massive withdrawals [Bear Stearns] . Government guarantees and Federal Reserve banking regulations to prevent these types of panics were ineffective or not used [Hope Now]. Bank failures led to the loss of billions of dollars in assets.
The debt became heavier, because prices and incomes fell 20–50% but the debts remained at the same dollar amount. Bank failures snowballed as desperate bankers called in loans which the borrowers did not have time or money to repay [auction rate securities].With future profits looking poor, capital investment and construction slowed or completely ceased [stagnant GDP]. In the face of bad loans and worsening future prospects, the surviving banks became even more conservative in their lending. Banks built up their capital reserves, which intensified deflationary pressures. The vicious cycle developed and the downward spiral accelerated.”
Source: The Great Depression, Wikipedia