The Leveraged U.S. Economy-The Two Edged Sword

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 words—there are no free lunches.

Be Solvent & Prosper,

Sanford Kahn, Business Author/Speaker

sanford16@yahoo.com