Debt is out; cash is in. Financial institutions are finding it hard to borrow from anyone but the state-and they are reluctant to lend to anyone else. Firms, aware that credit is drying up, are striving to raise cash. They have already run down their inventories and are trimming investment and jobs. Householders whose homes are worth less than their mortgages must save hard to reduce their debts. Those that cannot service their mortgages will default, causing more trouble for banks and, via lower house prices, other homeowners.rnJust a few months ago, the main worry of policymakers in many economies was whether, as the prices of oil and other commodities shot up, they could contain inflation. But the flight from debt and the dash for cash, inelegantly called "deleveraging", means a bludgeoning for demand. Now central banks and governments are facing a new set of questions. First, can they stop deleveraging from gaining momentum and wrecking their economies? And second, will the tools of conventional macro-economic policy-cutting interest rates, lowering taxes and increasing public spending-be enough?
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