Deleveraging
Before the credit crunch, firms and households expanded through 'leverage' - borrowing to buy assets. 'Deleveraging' is this process in reverse.
Before the credit crunch, firms and households expanded through 'leverage'- borrowing to buy assets. It worked provided asset prices rose as lenders knew they could seize and sell them should a client fail to repay interest and/or capital. 'Deleveraging' is this process in reverse.
The trigger was the credit crunch, which spawned falling prices for everything from houses and stocks to commodities.
Now over-indebted households, firms and hedge funds, many with falling incomes, can no longer find credit and are being forced to sell assets to repay even existing loans. This reinforces the downward trend in asset prices, leading to more loans being called in. The result is a vicious circle of economic contraction.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
See Tim Bennett's video tutorial: Three ways leverage can boost your returns.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
-
Four AI ETFs to buy
Is now a good time to buy AI ETFs? We examine four AI ETFs that investors might want to add to their portfolio
By Dan McEvoy Published
-
Chase boosts easy-access interest rate - savers could earn 4.75%
Chase is offering a boosted interest rate which is fixed for six months, on top of the standard variable rate
By Jessica Sheldon Published