Deleverage-Before-Stimulus Rule¶

Sequencing policy — instantiates Stock-First Control Restoration

Withholds the stimulus lever until an over-stretched stock is rebuilt past a set threshold — because pushing flow through an impaired reserve only deepens the hole.

Some levers should not be pulled yet. Deleverage-Before-Stimulus Rule is the sequencing policy that bars the flow lever — a stimulus, a price cut, a demand push — until the mediating stock beneath it has been rebuilt past a defined threshold. Its distinguishing idea is that it governs ordering and authority, not the repair work itself: it fixes how much rebuild counts as "enough" (the threshold, in the stock's own units) and names who is empowered to certify that threshold met and release the lever. Everything about it is designed to hold the line against the pressure to stimulate now, when stimulating now would only be absorbed by the hole in the stock.

Example¶

After a debt-fuelled asset bust, a central bank cuts rates toward zero and the government opens the fiscal taps — yet demand barely stirs. Households and firms are so over-leveraged that every spare dollar goes to paying down debt rather than spending: the stimulus lever isn't transmitting because the balance-sheet stock sits far outside its responsive range. A Deleverage-Before-Stimulus Rule inverts the sequence. It prioritizes balance-sheet repair — writedowns, recapitalization, saving — and holds broad stimulus in reserve until aggregate leverage falls below a stated threshold (say, debt-service ratios back inside a normal band). It also names who certifies recovery: a financial-stability authority, deliberately not the spending ministry that has every incentive to declare victory early. Only once the stock clears the bar does the rule release the lever — at which point stimulus can actually bite. This is the shape of a balance-sheet recession, where demand-side levers lose traction until balance sheets heal.^[1]

How it works¶

It is a precondition gate, not an action:

Define the threshold in the stock's own units. Set the level the reserve must reach — a leverage ratio, a buffer size, a trust index — before the lever is unlocked.
Assign an owner and an authority path. Name who is empowered to certify the threshold met and to release (or re-lock) the lever, and keep that party independent of whoever benefits from an early "yes."
Hold the gate against pressure. Treat "not yet" as a defended position with evidence behind it, rather than a call re-fought every quarter.

Its core discipline is separating who decides from who wants the answer to be yes.

Tuning parameters¶

Threshold height — how fully the stock must be rebuilt before the lever unlocks. Set high and the lever stays holstered into needless stagnation; set low and you re-arm a lever that still won't transmit.
Gate hardness — a hard bar versus a graduated release as the stock recovers. A hard bar is clear but abrupt; a graduated release blends into a staged reactivation.
Authority separation — how independent the certifying owner is from the party that wants the stimulus. More separation resists premature release; too much can ossify the gate.
Re-lock condition — whether a relapse re-imposes the bar, and on what evidence. Re-locking guards against false recovery but can whipsaw the system.

When it helps, and when it misleads¶

Its strength is that it prevents the expensive, demoralizing spectacle of straining a lever that cannot bite, and it protects a repair from being cut short by impatience. By fixing an explicit threshold and an accountable owner, it makes "not yet" a checkable, defensible stance instead of a mood.

Its failure mode is a threshold tied to the wrong variable, which can keep a healthy system in austerity long after the stock recovered — and a rule with no repair actually underway becomes an alibi for permanent inaction ("we can't stimulate until X," while nobody is working on X). The classic misuse is invoking the rule to justify a pre-held agenda — delay, or austerity for its own sake — rather than a genuine coupling problem. The discipline is to bind the gate to a measured stock threshold and a funded repair plan with a named owner, and to demand the same quality of evidence to keep the lever locked as to unlock it.

How it implements the components¶

Deleverage-Before-Stimulus Rule fills the governing / ownership side of the archetype — the components that set the restart condition and who holds it:

repair_threshold — it sets, in the stock's own units, how far the reserve must be rebuilt before the lever is released.
repair_owner_and_authority_path — it names who is empowered to certify the threshold met and to unlock (or re-lock) the lever.

It does not do the rebuilding (stock_repair_plan — [Replenishment-or-Refill Protocol]) or halt a lever that is already being over-pushed (lever_escalation_stop_rule — Lever Freeze-or-Cap); it only gates the restart.

Instantiates: Stock-First Control Restoration — this policy sets the stock-repair precondition that must clear before the lever comes back.
Sibling mechanisms: Trust-Repair-Before-Persuasion Rule · Lever Freeze-or-Cap · Gain-Collapse Test · Fallback Control Mode · Low-Amplitude Reactivation Probe · Hysteresis-Aware Exit Criterion · Minimum Stock-Floor Alert · Replenishment-or-Refill Protocol · Substrate Repair Protocol · Staged Lever Ramp · Stock-Flow Diagnostic Map

Notes¶

This rule and the Trust-Repair-Before-Persuasion Rule are the same gate on different stocks — balance-sheet slack versus trust — so pick the one whose stock matches the domain rather than applying both. And note the division of labour with Lever Freeze-or-Cap: that rule halts a lever being over-pushed now; this one withholds the restart of a lever until the stock has been earned back.

References¶

[1] Balance-sheet recession — a downturn in which over-indebted households and firms direct income to paying down debt rather than spending, so conventional demand-side stimulus gains little traction until balance sheets are repaired. The concept is associated with economist Richard Koo. ↩