As pundits and politicians continue to speculate about economic recovery, hundreds of companies large and small are struggling under loads of debt, filing for bankruptcy and closing their doors.
In September, 54 more large companies filed for bankruptcy, according to S&P Global intelligence. A total of 509 companies have gone bankrupt this year as of Oct. 4, exceeding the number of filings during any comparable period since 2010. That was piled on top of the 54 companies that filed for bankruptcy protection in August.
There seems to be mounting optimism that the US economy will rebound relatively quickly as states begin opening up and there is progress toward a coronavirus vaccine. But the optimism ignores deep problems in the US economy that existed before the pandemic – chief among them staggering levels of debt and the proliferation of zombie companies.
In the last couple of years, corporate debt has blown through the roof. So much so that the Federal Reserve issued warnings about the increasing levels of corporate indebtedness late last year.
Corporate debt has blown through the roof over the last several years. So much so that the Federal Reserve has issued warnings about the increasing levels of corporate indebtedness.
Borrowing by businesses is historically high relative to gross domestic product (GDP), with the most rapid increases in debt concentrated among the riskiest firms amid weak credit standards.”
But as Brandon Smith of alt-market.com noted in an article published at LewRockwell.com, this is a subject the mainstream media “seems specifically determined to avoid discussing these days when it comes to the economy.
We’ve talked a lot about government debt and consumer debt. In this episode of the SchiffGold Friday Gold Wrap, host Mike Maharrey highlights the massive corporate debt bubble. As he explains, it’s eerily similar to the mortgage debt bubble the blew up in the years prior to the 2008 crash. It’s a little like deja vu all over again. He also covers another round of gloomy economic data that came out this week.
There is a massive corporate debt bubble floating around out there, and when it pops, it will likely take a lot of companies down with it.
Outstanding corporate debt in the US stands at almost $10 trillion, according to SEC Chairman Jay Clayton. That’s nearly 50% of GDP.
News of a possible “phase 1 trade deal” and movement toward a resolution of the Brexit fiasco have buoyed stocks and put a lid on silver and gold this week. But positive vibes on these two fronts overshadowed a lot of economic data that came out this week that was less than ideal. It seems the American consumer might be getting close to being maxed out. In this episode of the SchiffGold Friday Gold Wrap podcast, host Mike Maharrey digs into a big pile of debt and more.
After Jerome Powell indicated that the Federal Reserve tightening cycle was on pause during last week’s FOMC meeting, Peter Schiff said, “The monetary drug pushers at the Federal Reserve gave the addicts on Wall Street exactly the fix that they had been craving.”
Peter often compares the markets to drug addicts. They are addicted to the easy money the central bank provides. Reuters used that same imagery to describe America’s business community in the wake of the “loose money era,” saying it left a “trail of US corporate debt junkies.
Bankers, investors and executives are increasingly worried about corporate debt, according to a Reuters report.
Specifically, the concerns center around “leveraged lending.” These are loans made to firms already deeply in debt. Think subprime loans for corporations. As the Reuters report put it, “the concern is that the loans would be difficult to either collect or resell in a downturn, putting both the borrower and lender at risk.”
While mainstream pundits and talking heads cluck about great jobs number and amazing economic growth, by and large, they completely ignore the fact that the entire economy is built on giant piles of debt.
In our Friday Gold Wrap podcast last week, Mike Maharrey talked about the fact that the economy is drowning in debt, focusing on ever-increasing consumer debt and government debt. He didn’t even get into corporate debt.
So, just how much debt is really out there? The following bullet points will give you a good birdseye view of the debt stretching from horizon to horizon.