Loading ...Is the Corporate-Debt Bubble Ripe Yet?
by Wolf Richter • Dec 12, 2019 • 75 Comments
The Fed is a superb example. In its most recent “Financial Stability Report,” released in November, the Fed warns about the historic record-breaking pileup of business debts in the US, as a consequence of low interest rates, and it considers this business debt the biggest risk to financial stability in the US.
But this warning came after the Fed had just cut its policy interest rates three times, and after it had begun to bail out the repo market with over $200 billion so far, and after it had begun buying $60 billion a month in T-bills, in total printing over $300 billion in less than three months, to repress short term rates in the repo market and to bail out its crybaby-cronies on Wall Street – and not necessarily banks – that had become hooked on these low interest rates.
And the Fed warns that a broad indicator of corporate leverage – the ratio of debt to assets for publicly traded non-financial companies – is at its highest level in 20 years. OK, 20 years ago was the end of 1999, just months before a phenomenal stock-market crash began.
Normally you’d expect inflation to be priced into debt, but central banks manipulate the credit markets with an iron fist, and if rates spike in an effort at price discovery – such as in the repo market – the central banks step in with all their might and push those rates back down. So current interest rates neither reflect current inflation rates nor future inflation risk. Nothing is priced in.
https://wolfstreet.com/2019/12/12/is-the-corporate-debt-bubble-ripe-yet/