Jim,
I'm not trying to pick a fight with you. But surely ordinary people don't do much financial leveraging and deleveraging. Leveraging means, simply put, that you extract an amount of profit with borrowed funds which you would not be able to claim just using your own equity. Effectively it boils down to using your ability to borrow, to stack up liabilities, and investing the borrowed funds to reap a return that is substantially higher than your cost of borrowing. The ability to borrow substantial funds is based on having a capital asset already. All's well until you get a cashflow problem when you have insufficient current earnings, and then you have to deleverage, which means shedding liabilities. But most ordinary people are not able to do this bankers' trick on any large scale, since they don't have the collateral. The only thing most people can usually do, is use their owner-occupied home as a collateral and realize a capital gain from that, for example, by raising loans based on the increased value of their home in a booming housing market. Ordinary people have to shed liabilities, because their salary (and whatever small property income they have) is no longer sufficient to sustain their debts. The top 10% of households own the overwhelming majority of stocks, while the bottom 80% own very little stocks. Of the people earning less than $50,000 only something like a quarter own bonds. If they own stocks or bonds, it might be through some retirement savings scheme. So if in recent years households have reduced their outstanding debt, I think this is unlikely to have all that much to do with deleveraging, but simply with the fact that their salary income - their main source of income - is insufficient to sustain the debt level that they previously had. J.
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