How much leverage?

Leverage can be like the story of the three bears.  One is too big, the other too small, but one of the three is just right.

You probably can't run an economy without leverage.  Perhaps you could, but it would be so limited that growth would be very slow.  You need some of those animal spirits which can provide the impetus for growth.  To put it another way, there needs to be incentives.

Perhaps another metaphor could be tried with the comparison to gambling.  You can have a lottery, which allows a few to win big, but the vast majority will lose.  Or, you could have a casino, where more can win than in a lottery, but the winners are relatively few.  Finally, you could have no gambling at all.  With no gambling, there is no easy money, but for some, that is a feature, not a bug.  Leverage is like gambling to the extent to which leverage is allowed.  The more leverage there is, the more it is like a lottery.  The less leverage, the more boring it is.  But no leverage at all is a safe option.  Yet, no risk, no reward.  Perhaps people require something of a risk to add some spice to their lives.

An alternative view of the current financial situation is that it was more like a lottery than a casino.  Now, it has been "reformed" so that it is more like a casino than a plain old vanilla economy with no risk.  For the leverage never really left.  The leverage is still there.  Moreover, it is desired.  Therefore, there's still a fractional reserve system based upon debt.  There's still a big, regulatory scheme with a big goverment saftety net.  The casino system seems to have served us well enough over the years.  It has been the dominant system since the end of the gold standard, when FDR abolished it.

There are those who would object to calling the current system a casino system.  Those same folks would also object to calling the gold standard a risk less system.  But when it comes to the monetary system, there can be no sounder, safer system than the gold standard.  FDR thought the gold standard was "just too darned sound" for his taste.  FDR's New Deal installed the casino like system when it dropped the gold standard.  The rest of the New Deal big safety net is there just to help out the losers when they inevitably lose.  Lose they shall, as in any casino system, in the end, the House always wins.

Keep in mind also, that FDR didn't do it by himself.  He had help when the Federal Reserve was created.  This made fractional reserve banking "safer", or so it seemed.  But it was really the first of many steps towards the big government safety net that was to be installed later.  Without the Federal Reserve and the income tax, the ruling class couldn't play their social architecture games.  The social architecture game is the ruse that allows the casino to function.  The ruse being that everyone supposedly has a chance to win, but in the end, the big government bad boys are always the winners as with the house in the casino model.