Published on: December 2, 2019by Kevin Coupe
The Washington Post this morning reports that "a decade of historically low interest rates has allowed companies to sell record amounts of bonds to investors, sending total U.S. corporate debt to nearly $10 trillion, or a record 47 percent of the overall economy."
The story suggests that there may not be any immediate danger, but that some experts "say the borrowing has gone on too long and could send financial markets plunging when the next recession hits, dealing the real economy a blow at a time when it already would be wobbling."
The Post continues: "Some of America’s best-known companies, including AT&T, General Motors and CVS Health, have splurged on borrowed cash. This year, the weakest firms have accounted for most of the growth and are increasingly using debt for 'financial risk-taking,' such as investor payouts and Wall Street dealmaking, rather than new plants and equipment, according to the IMF … Lured by low rates, companies have splurged on debt to repurchase their own shares, pay higher dividends to investors and fund acquisitions."
I'm no economist, but to me it almost sounds like in the skyscraper that is the American economy, there are a number of companies that have spent so much time on the upper floors and penthouses, expanding amenities and improving the view, that they have not tended to shoring up the foundation so that it can withstand inevitable tectonic shifts.
When the recession comes - not "if," because an eventual recession is inevitable - it seems likely that businesses and consumers may all be facing some sort of reckoning … a painful kind of Eye-Opener.
- KC's View: