Unsolicited Advice to Fed Chair Powell
American businesses over the past decade have taken a most unsettling turn. According to research from the Securities Industry and Financial Markets Association, as of November 2018, non-financial corporate debt has grown to more than $9.1 trillion [ed note: this number refers to securitized debt and business loans, other corporate liabilities would add an additional $11 trillion for a total of $20.5 trillion].
US non-financial corporate debt takes flight – the post 2008 crisis trajectory is breath-taking, to say the least [PT]
What is the significance of $9.1 trillion? And what are its looming repercussions? Here, for your edification, we’ll take a moment to properly characterize this number.
For one, non-financial corporate debt of $9.1 trillion is nearly half of real U.S. gross domestic product. Hence, the realization of profits by private businesses has required a substantial accumulation of debt. And this debt, like much of today’s outstanding debt, is shaping up to be reckoned with at the worst possible time.
Remember, when corporate debt is increasing faster than profits, it is like a plucked tomato sitting on a store shelf. It goes bad with little notice. Frank Holmes, by way of Forbes, offers the grim particulars:
This by now slightly dated chart shows the upcoming wall of maturities in junk bonds and leveraged loans as of mid 2017 – n.b., this doesn’t even include BBB-rated liabilities, which represent the by far biggest potential concern (“Titans’ debt” refers to the debt maturity profiles of the companies carrying the largest securitized debt in absolute terms, such as e.g. AT&T). [PT]
But that is not all…
Compounding Dishonesty
Whereas $9.1 trillion of non-financial corporate debt is nearly half of real U.S. GDP. And whereas this $9.1 trillion of non-financial corporate debt is the junkiest corporate debt ever seen. This $9.1 trillion of non-financial corporate debt is nearly double what it was just moments before the financial system exploded a decade ago.
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