Cor­po­rate Amer­ica Tee­ter­ing on Edge of ‘Toxic’ Debt Crisis

The Economic Times - - Commodities Plus -

Bob Ryan

US com­pa­nies have a loom­ing prob­lem of their own mak­ing, and it may soon come back to crush them. Ac­cord­ing to An­drew Lapthorne, head of quan­ti­ta­tive anal­y­sis at So­ci­ete Gen­erale, the amount of debt that busi­nesses have ac­cu­mu­lated over 5- 6 years has put them on the verge of a se­ri­ous crisis.

“This level of bor­row­ing in some sec­tors of the econ­omy is now boom­ing (with the risk of spin­ning out of con­trol) to such an ex­tent that we think that the build-up of debt on US non­fi­nan­cial cor­po­rate bal­ance sheets rep­re­sents one of the largest mis­priced risks in terms of fu­ture mar­ket sta­bil­ity, down­side risk and fu­ture eco­nomic growth,” Lapthorne wrote in a note to clients on Tues­day.

Lapthorne’s ar­gu­ment is that US cor­po­ra­tions have de­cided to bor­row money to fuel growth larger than that war­ranted by eco­nomic de­mand. But now with the as­sets back­ing this debt start­ing to de­cline in value, the wheels are go­ing to fall off. Lapthorne be­lieves there has been one cause of this be­hav­iour: cen­tral banks.

“Ag­gres­sive mone­tary pol­icy in the form of QE and zero or neg­a­tive in­ter­est rates is all about en­cour­ag­ing (forc­ing?) bor­row­ers to take on more and more debt in an at­tempt to boost eco­nomic ac­tiv­ity, ef­fec­tively mort­gag­ing fu­ture growth to com­pen­sate for the lack of de­mand to­day,” he wrote. — Busi­ness In­sider


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