Actually it's the lowering of interest rates over the last 30 years that allowed more and more money to be borrowed for the same amount of interest payments and has significantly magnified the leverage in the system.

Again it comes back to not learning from the past generations whose experience in different times can no longer be drawn upon so the same mistakes must be learned over and over.

https://market-ticker.org/akcs-www?singlepost=3415143

Let me remind you how this crank-turning has worked for the last 30 years, since people have short memories and I've only written a dozen or more Tickers on this, say much less the chapter in Leverage on same.

30 years ago you borrowed $1 million.  The interest rate was 10%.  You needed $100,000 a year in income to pay the interest coupon.  Governments and businesses never, ever, pay off those bonds -- they roll them over endlessly when they mature.  If you doubt this then go look at both corporate and government debt on the Fed Z1; neither has ever decreased by one dime, even during the 2007-2009 crash.

Ok, so then rates drop over time to 5%.  You could take that windfall of $50,000 in interest payments saved every year when your bonds are rolled and spend it somewhere.  But $50,000 is small ball because it will take 20 years for that savings to amount to a million bucks.  The alternative is that you can choose to keep paying $100,000 a year in interest but borrow another million and spend it right now.  Guess what business and government did?  Now you have another million to "spread around", whether it makes your P/E better, is handed out in social spending or whatever.

Rates continued to fall.  Over time they fell until just recently good credits in the corporate and government space could borrow for several years at rates of 1%!  So they did.  Now it's not $1 or $2 million that's out and has been spent it's $10 million, with the same $100,000 interest payment due.

But what happens if the rate goes up just 1% from there -- to 2%?

Now you have a big problem.  You either need to come up with $5 million in cash to retire half the bonds when they roll, since you only have $100,000 for interest payments or you're ****ed.  In the corporate sphere you can no longer "turn the crank" of leverage to goose "earnings", fund buybacks of shares and similar -- you now not only have rapidly increasing interest expense you can't borrow any more money because you can't pay the coupon on it given your current level of indebtedness.

Look at the stock market, size of government and government debt at all levels.  The cost of borrowing fell by more than 90% during this 30 year time period and that means ten times as much leverage became available.  Only about half of the market and government's gains over that time can be attributed to technological progress -- that is, productivity improvement.  The rest is a mathematical function that came from the increase in leverage.  But leverage is a two-edged sword and the laws of mathematics are not suggestions; it multiplies "earnings", "profits" and similar but it also multiplies losses by an equal amount.  It is why banks blew up in 2008.  It is why companies blew up in 2000.

And that is why it will all blow up if we don't cut the crap right here, right now.  Housing. Stocks. Bonds. Government at all levels; local, state and federal.

And you, especially if you have debt.

Not one person under the age of 50 has any business or political memory of the world before the declining bond market rate paradigm established itself in the 1980s.  Not one person folks -- because they were all either children or not yet born at that time.  None have ever run a business, invested a nickel or made public policy during that time.  Since executives tend not to actually become executives before they're in their 40s and 50s, and the same is generally true for politicians, this means that essentially nobody with either political or business power has ever lived through or made policy in an environment where rates were not generally declining over time.

All the people who have done it and thus know how said environment constrains your actions are dead.