But rising leverage can also be a threat to stability.
More worrying to some critics has not been the rising leverage, but the return of "cov-lite" bank debt.
A wonderful tool that generates heightened profits when assets are rising, leverage can crush you when it comes time to sell.
This boom displayed all of the features of a major financial crisis in the making — asset price inflation, rising leverage, a large current account deficit and slowing growth.
Historically, however, many price bubbles have gone hand-in-hand with borrowing binges and rising leverage, including America's share price and real estate bubbles in the 1920s.
So the causation could run the other way, with deregulation and rising leverage pulling in foreign capital, keeping the dollar overvalued, and producing persistent deficits.
This meant that we needed more domestic demand, other things equal, to achieve full employment — and arguably that we needed a series of bubbles and rising leverage, which are no longer forthcoming.
But rising leverage eventually bred easy credit and overvalued homes.Even without recession, falling home prices would have impaired enough mortgage debt to destabilise the financial system (see chart 3).
Rising leverage resulting largely from debt-financed mergers and acquisitions; rising credit, energy and labor costs; and "event risk" resulting from litigation are the principal reasons more companies will default, Moody's said.
They refer to the "poisonous combination of rising leverage and slowing growth".
Patience to let the system work through the tremendous amount of deleveraging required because of years of rising leverage.
