Our Bernstein Research US Economics team crunched the numbers to determine which segments of the economy have increased or decreased leverage since the Global Financial Crisis. Several conclusions can be made after analyzing the data and chart below. Since the crisis, the household sector has reversed much of the leverage they took on pre-crisis and yet the government has offset this secular deleveraging. Corporations have re-levered as well, but to far less a degree than the government. Across the financial sector, deleveraging was implemented, in large part due to regulation, while the Fed (monetary) felt the need to offset this deleveraging by utilizing alternative tools (i.e., increasing the size of their balance sheet).
Below are the US Economics team’s three key takeaways:
- Because households now have less debt, interest rate policy adjustments matter much less and don’t carry the effect they once did when debt balances were higher
- Since the government is now one of the leveraged sectors of the economy, the cyclical risk of a crisis is lower (relative to private debt) since the hurdle for a government debt crisis is very high
- Given its usage since the Global Financial Crisis, the Fed’s balance sheet is likely to remain a regular tool in the monetary policy tool kit
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.