This Will Turn the Next Economic Downturn Into a Full-Blown Crisis
This Will Turn the Next Economic Downturn Into a Full-Blown Crisis By Justin Spittler for Casey Research
This could ignite the next major financial crisis…
And it could happen sooner than most people think.
I’m talking about the explosion in corporate debt.
At the Dispatch, we’ve been preparing you for this for months now. Make sure to read our most recent essay on the subject here.
But the corporate debt bubble doesn’t just pose a threat to financial markets…
As we’ve shown you, it’s also a huge threat to the economy at large.
• Now, the Federal Reserve is saying the same thing…
Last week, Robert S. Kaplan – who heads the Dallas Fed – penned an essay titled “Corporate Debt as a Potential Amplifier in a Slowdown.”
You can read the entire essay here if you’d like. But it’s not necessary.
In short, Kaplan is worried about how much corporate debt there is since the global financial crisis. He’s also concerned by the huge deterioration in corporate debt quality.
In fact, he’s so concerned that he says corporate debt “could potentially amplify the severity of a recession.”
That’s right. The huge buildup in corporate debt could be what turns the next economic downturn into a full-blown crisis.
And we have good reason to think the corporate debt bubble will pop soon. I’ll explain why in a minute.
The good news is that there’s still time to prepare. I’ll show you how at the end of today’s essay.
But I should say something first…
• The Fed should have seen this coming from a mile away…
After all, it created the giant corporate debt bubble.
Regular readers know where I’m headed with this…
In 2008, the Federal Reserve dropped its key interest rate to effectively zero and held it near there for almost seven years.
This unprecedented intervention flooded the economy with cheap credit. It encouraged everyday Americans to borrow obscene amounts of money. Corporate America did the same.