Does the corporate debt mountain pose an avalanche risk?

[Peter1469]

Does the corporate debt mountain pose an avalanche risk?

Yes.

During the years of ultra cheap money, companies loaded up on debt but now the concern is whether they will be able to handle the mountain of debt as interest rates rise.

Until last year, companies basked in the sun of low interest rates while economies were expanding at a steady clip. They had no real reason not to borrow.

Sure they had reasons not to borrow, or at least over borrow: the money has to be paid back.

At the end of last year the US Federal Reserve estimated that private US companies held nearly $15 trillion (13 trillion euros) in debt. In Europe, non-financial companies hold some 12 trillion euros ($13.8 trillion), according to Pierre Verle, head of credit at asset manager Carmignac.

"In absolute terms, the debt of non-financial companies accounts for around 70 percent of gross domestic product in the United States and in the eurozone it is above 100 percent: these are elevated levels, but not explosive," said Isabelle Mateos y Lago, managing director and chief multi-asset strategist at BlackRock Investment Institute.

[Admiral Ackbar]

Pile this on with the Student Loan debacle and things could get bad. 2008 style situation coming, but this time there is no Gov Bailout. Will be a reordering of large magnitude!

[Peter1469]

Pile this on with the Student Loan debacle and things could get bad. 2008 style situation coming, but this time there is no Gov Bailout. Will be a reordering of large magnitude!

Yes. So far as corporate debt goes, a restructuring could be a good thing, as unsustainable businesses fall by the way side.

With regards to the student loan debt, those loans are likely going to have to be restructured. Student loans should be dischargable in bankruptcy. That would force banks to only loan to people who likely will graduate college, and end up with a worthwhile degree.

[Admiral Ackbar]

Yes. So far as corporate debt goes, a restructuring could be a good thing, as unsustainable businesses fall by the way side.


With regards to the student loan debt, those loans are likely going to have to be restructured. Student loans should be dischargable in bankruptcy. That would force banks to only loan to people who likely will graduate college, and end up with a worthwhile degree.

That of course would make Universities subject to market forces.. they would have to provide value for the money.. Imagine that!

[Cotton1]

Does the corporate debt mountain pose an avalanche risk?

Yes.



Sure they had reasons not to borrow, or at least over borrow: the money has to be paid back.

Debt can be and often is restructured. Corporate debt is not posing a problem at this time
Furthermore, the FED has no intention of pushing rates up enough to create problems beyond incidents related to a few corporations that are already mismanaged etc. I think a slight push in rates is a positive and it should have happened 2-3 ago. Why, you ask? Upticks in rates help spread capital into other asset classes which in turn spreads the risk away from too much capital parked in a single asset class such as the stock market...

[Cotton1]

Ill say one more thing. Mom and pop.America are the ones that have the most risk exposure. Example: you buy a 300k house on a variable rate mortgage. If rates pop up 3% thats $9,000 extra per year or $750 per month. THEN they whine about it , lmao. Apparently some people can't add, subtract or multiply. Bottom line? Some people are too stupid to have money or access to OPM (other peoples money). I have no sympathy for them. Greed got them trapped in a corner let them find their own way out

[Peter1469]

Ill say one more thing. Mom and pop.America are the ones that have the most risk exposure. Example: you buy a 300k house on a variable rate mortgage. If rates pop up 3% thats $9,000 extra per year or $750 per month. THEN they whine about it , lmao. Apparently some people can't add, subtract or multiply. Bottom line? Some people are too stupid to have money or access to OPM (other peoples money). I have no sympathy for them. Greed got them trapped in a corner let them find their own way out

I never fell for ARMS. Always had a fixed rate.

[Cotton1]

I never fell for ARMS. Always had a fixed rate.

Smart man..ARM's are ok if one has enough sense yo understand the intermediate to long term risk exposure vs the short term reward AND the capital to cover the worst case scenario. Its not for people that are simply greedy and want to finance as large a residence as they possibly. A rule of thumb is always give oneself a little elbow room in financial matters.