Falling profits trigger a self-reinforcing bankruptcy cascade

Evidence

Falling profits depress the capacity of firms to invest in new capital, consequently limiting future surplus value. At some point, the weakest firms go bankrupt. The workers fired as a result reduce their consumption which, subsequently, depresses further the profit of firms that just managed to hang on – some of which also go bankrupt thus precipitating a doom-loop, a domino effect of bankruptcies causing, and being amplified by, related financial and real estate sector slumps. — Yanis Varoufakis, Technofeudalism, 824

Categorization

• DEFINE: Concise, mechanistic definition of the doom-loop amplification the falling rate of profit sets in motion.
• corroborated: 2 independent passages support this claim — Yanis Varoufakis, Technofeudalism: What Killed Capitalism, 824
• XREF: connects to: High bank leverage turns small asset declines into instant illiquidity and insolvency. — Mark Blyth, Austerity: The History of a Dangerous…, 84; Clearinghouse settlement failure alone could have triggered a cascade of 1987 bankruptcies; Financial deepening is linked to bankruptcies, bank failures, and recession. — Shoshana Zuboff, The Age of Surveillance Capitalism, 1760 (+5 more)

Broader Connections

• Bankruptcy and collapsed future expectations erode even established trustworthiness #expands (0.80) — Russell Hardin, Trust and Trustworthiness, 257
• Levered low-beta portfolios risk instability when group earnings deviate from expectations #exemplifies (0.80) — Donald MacKenzie, An Engine, Not a Camera, 1488
• Debt forms cascading chains that transmit creditor pressure downward #expands (0.78)
• Value-at-risk limits force position liquidation once breached #exemplifies (0.75) — Donald MacKenzie, An Engine, Not a Camera, 1048
• Economic slumps create the triggering conditions that attract racketeers #corroborates (0.72) — Diego Gambetta, The Sicilian Mafia The Business of…, 517