The dominant theme in financial markets is deleveraging. This process sounds abstract, but I expect it to dominate the real economy for at least a year.What is deleveraging, and how did the present situation come about? Banks, many hedge funds and other financial institutions have too little equity capital and too much debt financing their assets. Private sector credit reached an all time high of 300 percent of U.S. GDP in 2007 (the previous peak was in 1929). The value of these financial institutions' assets has fallen. To maintain their capital ratios and to stay solvent, financial ...
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