Can Cheap-Leverage Models Survive Higher Rates

The Cost of Capital Becomes the New Market Constraint

The central question in this report is whether business models built on cheap leverage can survive structurally higher funding costs and less forgiving capital markets. This transition is a repricing mechanism for every asset class and balance sheet. While nominal growth requires financing, the cost of that capital is resetting upward while policy support is less synchronized. Over the next decade, the cost of capital will determine which industries scale and which assets maintain current valuations.

Structural constraints drive this regime shift. Demographics are reducing the pool of working-age workers, which creates wage pressure and prevents a return to the low-inflation patterns of the 2010s. The energy transition and supply-chain diversification add durable operating costs, weakening the disinflationary impulse of globalization. Simultaneously, central bank balance sheet runoff withdraws liquidity while term premiums normalize. The transmission of cheap money has already migrated into non-bank lenders and private credit markets that require continuous market access.