Shifting Financial Leverage Poses Economic Risk
We believe the 2008 financial crisis was caused by too much leverage, specifically in the financial sector. The average total debt held by S&P Financials was approximately six times their equity. In the US today, banks have done their part in deleveraging and this ratio is now approximately one for one. The Federal Reserve’s response to the crisis was to lower rates to essentially zero to encourage spending and borrowing to stimulate the economy. Both businesses and the government seem to have quickly seized the opportunities created by cheap debt.
Posted ByMay 13, 2019