Corporate Debt Flashes Warning Signs Similar To The Sub-Prime Mortgage Crisis

Monday, January 21, 2019
By Paul Martin

Mac Slavo
January 21st, 2019
SHTFplan.com

In 2008, when the United States was flung into recession, the culprit was the sub-prime mortgages. People without the ability to repay the money, borrowed to buy houses only to lose it all once the bubble burst. Now, the corporate debt crisis is poised to cause a similar recession.

Although student loans debt has skyrocketed to a disturbing $1.5 trillion, some economists are saying the $1.2 trillion corporate debt could be capable of producing a more disastrous scenario. The borrowers in this current credit bubble aren’t homeowners taking out mortgages. They’re hundreds of United States companies with weaker credit ratings (many of them well-known like Uber and Burger King) who are taking out so-called leveraged loans, according to a report by the Los Angeles Times. These loans are used to fund corporate deals and are of a big concern to financial experts.

“Any fair-minded look at the leveraged loan market should cause significant alarm by anybody concerned about financial stability and the inevitable upcoming economic downturn,” said Dennis Kelleher, president of Better Markets, a group that advocates stricter financial regulation. “You put all these pieces together, it’s a witches brew.”

Former Federal Reserve Chairwoman Janet Yellen also went public this fall with her worries about what she called a “huge deterioration” in the standards for those loans, which make it easier for indebted companies to take on more debt. “If we have a downturn in the economy, there are a lot of firms that will go bankrupt, I think, because of this debt,” she told the Financial Times. “It would probably worsen a downturn.”

But regulations and new laws won’t fix the fact that people and companies and the government itself (who writes and enforces the laws about loans and debt) will not quite borrowing money. The problem is the behavior and reliance on debt in the American culture, not the lack of laws.

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