We Have Seen This Happen Before The Last 3 Recessions – And Now It Is The Worst It Has Ever Been
We Have Seen This Happen Before The Last 3 Recessions – And Now It Is The Worst It Has Ever Been by Michael Snyder for The Economic Collapse Blog
Since the last financial crisis, we have witnessed the greatest corporate debt binge in U.S. history. Corporate debt has more than doubled since then, and it is now sitting at a grand total of more than 9 trillion dollars. Of course there have been other colossal corporate debt binges throughout our history, and they all ended badly. In fact, the ratio of corporate debt to U.S. GDP rose above 40 percent prior to each of the last three recessions, but this time around we have found a way to top that. According to Forbes, the ratio of nonfinancial corporate debt to U.S. GDP is now nearly 50 percent…
Since the last recession, nonfinancial corporate debt has ballooned to more than $9 trillion as of November 2018, which is nearly half of U.S. GDP. As you can see below, each recession going back to the mid-1980s coincided with elevated debt-to-GDP levels—most notably the 2007-2008 financial crisis, the 2000 dot-com bubble and the early ’90s slowdown.
You can see the chart they are talking about right here, and it clearly shows that each of the last three recessions coincided with the bursting of an enormous corporate debt bubble.
This time around the corporate debt bubble is larger than it has ever been before, and risky corporate debt has been growing faster than any other category…
Through 2023, as much as $4.88 trillion of this debt is scheduled to mature. And because of higher rates, many companies are increasingly having difficulty making interest payments on their debt, which is growing faster than the U.S. economy, according to the Institute of International Finance (IIF).
On top of that, the very fastest-growing type of debt is riskier BBB-rated bonds—just one step up from “junk.” This is literally the junkiest corporate bond environment we’ve ever seen.
Needless to say, the stage is set for a corporate debt meltdown of epic proportions.
What makes this debt bubble even worse is the way that our big corporations have been spending the money that they are borrowing.
Instead of spending the money to build factories, hire workers and expand their businesses, our big corporations have been spending more money on stock buybacks than anything else.
Every year, publicly traded corporations spend hundreds of billions of dollarsbuying back their own stocks from shareholders, and much of that is being done with borrowed money.
For example, in recent years General Motors has spent nearly 14 billion dollarson stock buybacks. And that number certainly sounds quite impressive until you learn that General Electric has spent a whopping 40 billion dollars on stock buybacks.