  I sketch a program for a microeconomic theory of the main component of the
business cycle as a recurring disequilibrium, driven by incompleteness of the
financial market and by information asymmetries between borrowers and lenders.
This proposal seeks to incorporate five distinct but connected processes that
have been discussed at varying lengths in the literature: the leverage cycle,
financial panic, debt deflation, debt overhang, and deleveraging of households.
In the wake of the 2007-08 financial crisis, policy responses by central banks
have addressed only financial panic and debt deflation. Debt overhang and the
slowness of household deleveraging account for the Keynesian "excessive saving"
seen in recessions, which raises questions about the suitability of the
standard Keynesian remedies.
