‘Risky Corporate Debt’

“Global economy faces $19tn corporate debt timebomb, warns IMF”

I hate myself for doing this, and by that I mean that I would rather chew my arm off than give any sort of airtime support to The Guardian. But that’s another story and they have this particular story – so let’s press on.

A “…$19tn corporate debt timebomb…”.  Wow!  Now that’s something to write home about.  I don’t see many people writing…

So, what’s it all about?  Isn’t the global economy sort of ‘up-ticking’ just now?  I heard somebody actually say that recently.  Well… there are appearances, and then there is reality.  Take your pick …and hope your chosen bubble doesn’t burst. 

In the hopes of saving you from having to delve into The Guardian’s mumbo jumbo, here’s a quick explanation. Capitalism – (you know what capitalism is, right?) – is about to take a face splat onto the concrete pavement of reality (I think I said that somewhere else recently).  “Why, and how do you know?” – I hear you ask.  Simple. It’s all about the ultra high levels of ‘risky corporate debt’.  Or as The Guardian puts it – ‘corporate debt at risk’ (they have a better way with words than I do).

What is ‘risky corporate debt’ (my article, my choice of phrase)?  OK, here I will fall back on TG’s definition (I’m also an equal opportunity player).  They say it is, and I grudgingly agree: “…debt owed by firms unable to cover interest expenses with earnings…
Right?  Well… maybe that does need a little bit of explaining.  If a firm has a debt (they borrowed from, and therefore owe money to someone) and they are unable to repay that debt or even just the interest on that debt, from their income (money they have earned), then that is what is known as ‘risky corporate debt’.  Are we together on this?  You understand?  I’m not being superficial (??), or super… cilious (??) (better), I’m just wanting to make sure this is absolutely clear.

So, not only do these firms have debt they can’t pay but jointly they have amassed $19 trillion worth of the damn stuff.  And that is the ‘wow!’ factor.  Now, if you or I had such a debt, it might be ten bucks or even a hundred, but can you even imagine $19 trillion?  That, written out, is $19,000,000,000,000.

Can you see the problem?

Now, imagine this – if those companies go belly up (because if they can’t pay their debts, that’s a good enough reason for them being stopped from doing business, at all), then a whole lot more companies with connections, even ever so remote connections, to them would also go belly up.  And that would start a cascade (imagine the line of dominoes) effect that would circle the globe.  End of capitalism.  End of your job (everybody’s job).  End of earned (and unearned) income.  End of current way of life.

Finally, and it really goes hand-in-hand, governments are also not immune from this sort of thing.  They also borrow money they can’t repay.  Well, most of them do, and mostly it comes from spending money they don’t have by borrowing from the future.  How do they borrow from the future you ask?  They spend money that has been set aside to pay future pensions, healthcare, unemployment and the like – in the hope that they will be able to pay it back ‘at some stage’ before it is needed.  Take the US government for example.  They have amassed unpayable debt owed to their employees and dependants to the tune of more than, not just $19 trillion, but a staggering $126 trillion (increasing by about $1 million every 4 seconds*).

What happens when governments go belly up?  And that one particular government in particular?  Its creditors are not just going to sit idly by and go “Oh well…”.

* Check out usdebtclock.org – heading ‘US Unfunded Liabilities’ (bottom right corner).

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