Now we have people calling for [interest] rates going back to “normal levels”?
How much leverage is out there in the market today? About as much as was in 2007 — maybe more.
The problem is that all of this inflation in asset prices wasn’t from earnings, it wasn’t from saved capital, it wasn’t from improved business conditions such as a recovery in employment.
It was borrowed.
By the government, by private businesses and by individuals and traders in the markets.
While you generally don’t borrow with rollover risk but everyone else in the markets does — governments, companies and traders.
Worse, they use leverage when they borrow. They “gear up” to “earn profits.”
Now this is threatening to unwind en-masse, after it was gamed in the first place.
How bad can it get?
No, it won’t all happen in a day.
But it will happen.
Remember the cracks in 1987 — and 2007 — showed up several months before the leverage unwind went “boom.”
Don’t get complacent.