The Unintended Consequences of Leverage

When it works in your favor, leverage can be your best friend, multiplying returns. When the opposite occurs, it can be ruinous. We were reminded of this when last week we read a report1 distributed by the Congressional Budget Office (CBO) demonstrating what the interest payments on the federal deficit would increase to when Treasury rates rose under several recovery scenarios.

We have lived in a debt-driven economy in the U.S., and to a lesser extent Canada, for the past half century. Credit cards were unheard of two generations ago. Now they are de rigueur. Their existence means that everyone, government included, knows your spending history.

Written by Micheal Berry, MBA - [ Discovery Investing Web Site ]