Corporate Debt to GDP Higher Than Before 2008 Debt Crisis

Corporations are not to blame for the coming debt default debacle. ZIRP is a life preserver thrown to a drowning man; if your business can’t survive without taking on endless new debt that costs almost nothing in short-term interest, of courses that is what you are going to do.

But the availability of that debt, if it should ever be available at all, should be limited only exist in times of immediate and massive crisis, when without it, we’re facing the genuine systemic failure of the functioning of the day-to-day fiduciary system.

That’s how it was supposed to be. Very short-term, emergency conditions. Instead, 10 years on, ZIRP is propping up bankrupt mall retailers and their ilk, corporate zombies taking on equally dead money that will be in default as soon as interest rates rise.

Thanks to the Federal Reserve, years of easy credit may bring about new financial woes for US corporations. As the Federal Reserve raises interest rates, overextended corporations are easing up on borrowing, but could face a long-term debt-repayment problem.

The debt/earning ratio rose to 37 percent in 2017, up 10 percent from a decade ago. Combined with higher interest rates, a recession may loom in 2019.

Burdened with overwhelming debt, corporations will need to find ways to cut costs and reduce expenses. This could lead to layoffs and higher unemployment, despite the current positive employment outlook.

According to David Ader, who is the chief macro strategist at Informa Financial Intelligence, the debt of US nonfinancial companies is at a record high of $8.7 trillion, comprising 45 percent to total GDP.

This debt to GDP ratio is higher than during the dot-com bubble and could become worse still unless the Federal Reserve raises interest rates instead of keeping rates artificially low.

ORIGINAL SOURCE: Corporate America is Feeling the Pain: Debt Spiral by Tom Lewis at The Gold Telegraph on 4/12/18