The situation remains highly unstable and the market is showing little confidence in the European leaders’ resolve and ability to bring an end to the debt crisis. The situation is very worrying. 6. Once a country gets into the habit of spending beyond its means, relying on debts to finance its expenses and rolling over old debts with new ones, it is a matter of time that the country would run into trouble. The only way out is to reduce debt and endure the excruciating pain of de-leveraging. While leveraging or borrowing normally produces intoxicating feel-good effects, such as job and income growth, buoyant consumption and investment, strong credit demand, asset value appreciation and business boom, deleveraging has exactly the opposite effect, creating very unpleasant and painful consequences. The injection of ample liquidity into the banking system by central banks to suppress interest rates is certainly helpful in alleviating the pain of those debtors who can refinance their loans with lower interest rates and thus reduce their interest and repayment burden. However, many households in the US are denied access to cheaper and falling mortgage rates because they are in negative equity and cannot afford to refinance. Lower interest rates are thus of little help to them. Moreover, pushing interest rates to close to zero also deprives prudent savers of the interest income that they can earn from their savings. Many savers, including pensioners, have to cut back spending because of the sharp fall in their recurrent interest income.
This will strengthen its position as a global leader in wealth management. BIS Review 110/2008  1