The day of reckoning: the United States began to smoke debt bomb

Час расплаты: под США задымилась долговая бомба

© 2019 AFP / Getty Images/Drew Angererthe Total debt of companies listed on U.S. stock exchanges reached ten trillion dollars. This is much more than the mortgage bubble that triggered the global financial crisis in 2008. Economists warn that USA has the biggest debt disaster, and it will not stop.

Ten trillion or more

Since 2008, corporate debt grew by 52% — up to ten trillion dollars, 47% of the country’s GDP. And analysts believe this number is conservative.”Add to the bond debt of small, medium, family enterprises and other companies that are not listed on stock exchanges. This will give another 5.5 trillion. So, the total corporate debt of USA to date — 15.5 trillion, or 74% of GDP,” — says the American Forbes.
Not surprisingly, defaults are more. According to estimates by leading investment Bank Goldman Sachs, defaults in the market vysokoporodnyh corporate bonds this year reached the highest level since the credit crisis of 2008.The situation is complicated by the fact that the lion’s share of bonds with a very low reliability rating is just one notch above “junk”. According to credit rating Agency Standard & Poor’s, now in the hands of the investors of such bonds by nearly four trillion dollars. Experts explain that low quality corporate debt in itself is unlikely to lead to recession, but the financial crisis will significantly increase the problems in the us economy.In addition, even large corporations are so strapped for cash that it is difficult to service their debts. According to the international monetary Fund, this applies to giants such as AT&T, Ford Motor, and CVS Health.”We are sitting on an unexploded bomb and don’t know when it will explode, says Emre Tiftik, an expert on debt issues of the Institute of international Finance. — We will face a wave of defaults, the most shattering of all that was.”

Everything is under control?

As asserted in August, the Federal reserve, the volume of risky corporate debt have nothing to do with the giant mortgage obligations that caused the financial crisis of 2008.”This is a different situation, said analysts at the fed. — Corporate loans structured safer mortgage-backed securities, zero years, and the banks able to cope with risk.”On the other hand, indicates The New York Times, the us Central Bank is “not particularly confident in the economic consequences of a possible failure in the indebted sectors of the economy.”
This is the fed the main culprit of the corporate debt boom. After the 2008 crisis, the regulator has lowered interest rates to zero and long held them at historic lows. In the result, the side effects were too great.”This era of cheap money forever years maintained afloat debt-ridden “companies-zombie”, which would crash if rates were at acceptable levels”, — analysts of German financial giant Allianz.

Last year, Goldman Sachs experts warned that the tightening of monetary policy, the fed does not leave “zombie companies” (not generating a profit and living in debt) chances of survival: to take out new loans too expensive and to pay off old nothing. The abundance of “living dead” is a real harbinger of the next major crisis.
The concern is the debt burden not only of companies but also the Federal government. By mid-November, the U.S. national debt has reached 23 trillion dollars, and the budget deficit has exceeded a trillion. Assured recently fed Chairman Jerome Powell, speaking before the budget Committee of the house of representatives of the Congress, the immediate threat nor unaffordable debt or huge deficits do not carry. According to him, the status of the dollar as the global reserve currency helps “prevent any problems.”But, it seems, not all FOMC members share the optimism of Powell.For example, Federal reserve Bank of St. Louis published in November the document entitled “Arguing about the national debt”, which clearly implies: the fed’s policy could trigger an economic collapse.

Experts of Bank, in particular, reminded that the national debt becomes a problem when GDP is growing faster. And estimates of the Committee on budget in the coming years it will be so.As a rule, governments do not have to fully pay the debt — he refinanced. But if the holders of sovereign bonds deemed an unsustainable situation, new loans will be denied. In such a situation, the Central Bank includes the printing press, to buy bonds from the market. Infinite growth of the fed’s balance sheet undermines the credibility of the dollar and eventually turn into a sovereign debt crisis, analysts say.Natalia Dembinski

Share Button