# The Concept of DeLeveraging



## techrun (Nov 7, 2012)

Not talked about near enough in the media. But that is what we're slowly entering into.


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## TheAnt (Jun 7, 2011)

I am not familiar with the term. What does it mean? I am guessing it means paying down debt? Is it in regard to national monetary policy or personal financial policy or both?


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## CrackbottomLouis (May 20, 2012)

If Im not mistaken, it means that we havent seen enough growth from leveraging to justify the risk that came from the massive debt. Therefore we must pay down the debt, furthering economic decline, and worsening the financial situation. I believe deleveraging applies to both public and private debtors. Maybe they are just making small moves right now hoping spending in the holiday season will counteract some negative effects and we'll come out with less debt on the otherside.


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## BadgerPeak (Sep 25, 2012)

Us debt will never go down until we pay it off by massive printing of paper money (more massive than right now). The gov't couldn't begin to pay down our debt even if congress and the president wanted to. We simply don't have the money.


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## techrun (Nov 7, 2012)

The term applies on so many levels. Right now, our bank is insistenting our customer stop borrowing money on a leveraged basis.

In other words, what they've been doing the last decade or longer is cashing out equity in one venture to invest into another venture. Deadly game to play because if you stump your toe once it can cause the whole thing to crumble. 

This has played out and what banks find out is there is no equity left in anything. So, it's a let's get this venture up and running, store up cash from it and then use cash to start the next venture. 

This theory will slow down the economy no doubt. However, it will also stabilize it in the long run. 

Now you can apply this same theory to personal finance, guberment spending and so forth. 

On a personal level, you sell your $250K house and buy a $150-175K house. Then you live off a cash basis instead of a credit basis. I

If your saving $500 a month in house payment, you save that up for 2-3 years and pay cash for that new 4-wheeler instead of financing it. 

Those are pretty simple and basic examples of DeLeveraging. 

You can applies them on deeper and larger scale for whatever you want.


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## techrun (Nov 7, 2012)

Point is, those individuals and business that begin to deleverage themselves have a much higher chance of surviving a deep recession.


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## TheAnt (Jun 7, 2011)

Good information! I am in the process of doing the same things to pay off, simplify, live on less, pay in cash, store things of value.


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## BlueShoe (Aug 7, 2010)

Doing a Dave Ramsey approach. Stop borrowing money and start paying off debt. This economy is a consumer driven economy based on a debt instrument (the Dollar), and when you stop borrowing, banks suffer and the economic indicators turn downward. When the news speaks of "growth", they're talking about borrowing. Screwed up is what it is. Borrowing and indebtedness is growth here. We're so far down the pike of banker worship, it's sickening.


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## BillS (May 30, 2011)

http://en.wikipedia.org/wiki/Deleveraging

At the macro-economic level, deleveraging of an economy refers to the simultaneous reduction of debt levels in multiple sectors, including private sectors and the government sector. It is usually measured as a decline of the total debt to GDP ratio in the national account. The deleveraging of an economy following a financial crisis has significant macro-economic consequences and is often associated with severe recessions.


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## BillS (May 30, 2011)

No, I don't think the economy will enter a deleveraging phase. Certainly not by the government. They'll spend more. Raise tax rates. But the amount of revenue collected will go down. They'll TALK about spending cuts but outside of cuts to the military they won't happen.


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## BlueShoe (Aug 7, 2010)

And on 12-12-12, the Fed announced it will add 1 trillion to the national debt in 2013 alone through QE.


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## preponomics (Nov 18, 2012)

techrun said:


> Point is, those individuals and business that begin to deleverage themselves have a much higher chance of surviving a deep recession.


I definitely agree

The more leveraged a company, or individual becomes at the micro-economic level, the more insolvent they become.

Many argue that leveraged economies are better because interventionists can inject a "supply" of cheap easy credit which in turn creates a demand, but this is upside-down-economics that leads to in-sustainability and a perverted demand. Demand should be a natural occurrence in the market place where individual capitalists engage profitable solutions to "supply" it.

If the economy is deleveraged then the business owner and individual investors are more solvent and can endure a recession or even a depression if prepared.


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## preponomics (Nov 18, 2012)

tenOC said:


> And on 12-12-12, the Fed announced it will add 1 trillion to the national debt in 2013 alone through QE.


Does this mean silver will go up another 25 bucks an ounce!!!


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