Messieurs Poloz, Flaherty, Carney, Bernanke and Madame Yellen et al are all on the record warning about leverage and the cost of it as a major risk going forward. Chris Kimble makes an interesting observation that the St Louis Fed Stress Chart is at the lowest historical levels just as it was in 2007 and 2000 when the S&P 500 was at its highest.
The North American story is that the U.S. economy is growing, recession has been averted, the business cycle is risk-back-on and Canada as a satellite exporter to the U.S. will participate in the new joyful inflation as central banks raise rates to make sure we all stay within the 2% CPI target and not get too hot nor stay too cold. Mr Harper continues to assure that the government will evaporate the deficit by 2015 (government workers are advised to start looking for private sector employment).
Aw shucks, all is calm, all is bright in the kingdom of managed inflation so keep buying more stuff because prices are going up; but just a little bit, 2% per year, no big deal. Rates might go up 25 beeps or so, but no big deal. Your employer can hardly wait to get pricing power advantage and more productivity out of you so he can raise your pay packet and not lose you to the head hunters in Alberta.
Wait a minute; the "risk" of rising interest rates is not really the BIG risk that central banks of countries, who are autonomous issuers of their own non convertible currency, lose a lot of sleep over lately. It's the "D" word that provokes insomnia in government and the private sector. As Chris Kimble points out in the chart above, the stress at the Fed could not be much lower than it is today and sleep should be effortless. But what if asset valuations decline? Is that not the greater risk over time?
Japan: Here is what 30 years of low interest rates looks like; and here is the effect on assets and behaviour.