When It Comes To Huge Corporate Leverage, There Is No Easy Way Out

"Records were shattered on debt, GDP, and leverage", SocGen's Stephen Gallagher writes, recapping what will be remembered as one of the most harrowing stretches for the US economy in recorded history. What comes next is obviously the subject of considerable debate. On one side are the likes of Larry Kudlow who, at least in part because of his current job title, continues to insist that a "V-shape" recovery is all but assured. On the other side are the "pessimistas", as Kudlow famously dubbed a
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5 thoughts on “When It Comes To Huge Corporate Leverage, There Is No Easy Way Out

  1. Some amount of this will end up on the Fed balance sheet.

    The system we have now requires it to ever expand. Shrinking credit? No way. We need to continue to expand credit or the whole thing collapses.

    There is no going back to the discipline and interest rates we had through, like, the GFC. That is a bygone era. We made choices as a society and we have to live with them. Granted, none of use had any say. But, here we are.

    What stinks and is absolutely terrible about this path is the negative consequences for our society. That this borrowing is not being put enough toward furthering productivity, toward creating industries, toward creating jobs and future tax revenue, stinks. (Capital gains taxes paid by the wealthy who benefit disproportionately is not a benefit of this new system, but a sign of the system’s corrosive effects.) Would be great if somehow some meangingful portion of the llargesse could benefit small business and startups. No big brain people I follow seems to have good ideas to help this part of the ecosystem. Maybe there is no helping it. Maybe this has to play out and we start again. Maybe we could at least use the tax code to provide benefits to smaller firms to build and expand. As a way to help balance things out.

    1. This is a big part of why I advocate for UBI. It’s becoming more and more likely (almost a certainty at this point) that this debt will either end up on the Fed’s balance sheet and/or be inflated away. There is virtually no path where our economy grows enough to support any sort of monetary normalization with the amount of corporate debt in our economy. UBI can help achieve the simultaneous goals of creating inflation and also redistributing wealth to the folks who didn’t see the benefit of all the monetary largesse of the last two decades.

    2. I am reminded of Woody Allen’s take on relationships:

      “A relationship, I think, is like a shark. You know? It has to constantly move forward or it dies. And I think what we got on our hands is a dead shark.”

      (Like an economy which has to grow in order to survive.)

  2. Big worry is if the next recession breaks the dollar. Fed won’t be able to respond, public corporations will have to raise capital the ugly way, and sell equities into what would normally be a bottom. King dollar

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