Excessive leverage is a big reason why large economies have become so sensitive to interest rate boosts.  The Fed’s low-rate policy medicine helps prevent deleveraging during an economic downturn.  This helps to mitigate the downturn. But as the economy recovers and the Fed is forced to raise interest rates,  the increased rates will push deleveraging sharply higher in the recovery.   This will put downward pressure on the recovery and increases in employment. The more the Fed helps the system today, the harder it becomes to properly conduct monetary policy tomorrow.  In other...

Government issues debt securities to finance their massive budget deficits.  While this trend can persists for some time, the rate of increase can not go on forever. There is a 10% barrier that governments pass at their own peril.  What this barrier says is that when interest payments on government debt  as percentage of general government revenues hits 10% or more the debt game is coming to an end. Don’t underestimate this boundry.  The 10% barrier is crucial because as above this level, debt service costs will start to limit government’s options.  In other words as you get above...