Monday, July 13, 2015

Let's head off the childish idiocy of the US corporate debt story before it becomes a thing

Here's Sam Ro, putting that journalism diploma to good work:

BI - OMG corporations have to roll over $5.8 trillion in debt!

In case this becomes the next big boogeyman making stupid Americans run away from the market leaving a trail of girl-piddle behind them, here's some facts:

(1) Interest rates won't rise until worldwide saving decreases or new borrowing explodes. Sorry, but the market for loanable funds works that way.

(2) He hides in a link a chart that points out that US corporate debt-to-equity has dropped to a level last seen in 1988:

(3) Which is actually bad, because corporations are supposed to borrow in order to fund capital expansion that grows earnings and productivity. That's how capitalism works. The big spike upward that you see in the above chart in 1989? That fueled the 1990s boom.

(4) But that doesn't matter anyway because debt servicing in relation to book equity is a hell of a lot healthier than this chart shows, since rates are so low.

(5) Oh but wait, interest rates are going to go up? No they're not, see (1) above.

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