$10 Trillion Corporate Debt Bomb Is Waiting to Explode the U.S. Economy (Newsweek).
Even before the pandemic reached its height, the IMF was warning in January that the world’s largest economies like the U.S. were unprepared for a slowdown.
Fast forward half a year, with millions of lost jobs and thousands of businesses gone bankrupt in the U.S. because of the novel coronavirus, the word slowdown is inadequate to describe the scale and speed of the economic collapse.
And the pandemic could yet throw another grenade at the economy: A massive corporate debt explosion.
The American economy has lived on debt for a long time. The ratio of the total debt of the government, businesses, and consumers relative to GDP has more than doubled since the 1980s. Record-low interest rates following the 2008 financial crisis further swelled the debt significantly. NEWSWEEK SUBSCRIPTION OFFERS >
U.S. companies owe more than $10 trillion, which is nearly half of the country’s 2019 GDP of $21.5 trillion. Taking other forms of business debt into consideration, including partnerships and small businesses, that figure stands at an eye-watering $17 trillion, the Financial Times reported earlier this month.
“Long term, however, it’s not clear whether the now highly indebted companies will be able to survive, especially in industries like travel and leisure,” David Gulley, professor of economics at Bentley University, Massachusetts.
“If the defaults become widespread, credit spreads will increase, making it more expensive for companies to raise money to fund operations,” Gulley said.