We study a continuous-time model of joint leverage and liquidity management without commitment. Our model highlights how cash reserves shape capital structure policy. Although shareholders typically resist leverage reductions in canonical models (i.e., the ``leverage ratchet effect''), our model predicts leverage adjustments in both directions: (1) cash-rich firms with little debt tend to deleverage while accumulating cash, thereby reducing expected future debt obligations at low opportunity cost; (2) cash-strapped firms issue debt to replenish liquidity, even without corporate tax shields. Our equilibrium characterization yields financial policies, asset prices, return volatilities and credit spreads in closed form.