The catalyst of the next financial crisis has been identified, according to some economic analysts. The growing mountain of corporate debt, which has already forced the “retail apocalypse” will also jumpstart another financial crisis.
One of the factors in the next financial crisis will be the enormous accumulation of debt by large private companies and the way these debts are used. Many have already expressed concerns about the mounting levels of debt gathered by corporations, governments, and individuals. But now that it is all becoming visible, the debt issue is alerting even the most unconcerned to the problem at hand. But some are still ignoring the obvious problem: debt.
Ironically, the problems in our economy are being increasingly blamed on capitalism, which we don’t have. At best, we’ve got a system of crony corporatism and a rigged debt-based economy manipulated by central banks. Capitalism would imply that the free market is in use – taxation proves we don’t have capitalism or a free market economy. In fact, the bastion of authoritarian control on the economy, the International Monetary Fund, has even warned about the problem of mounting corporate debt.
The IMF has also recently warned governments to reign in their debt before an economic meltdown, as it’s the only chance the world bank and governments have to survive and remain relevant. Because of this, we should all be taking a long hard look at our own financial situation and see where we can make the cuts necessary to begin the epic task of eliminating liabilities, aka, paying off debt.
By the end of 2018, non-financial corporate debt to GDP (Gross domestic product) was 73 percent, close to levels seen just prior to the global financial crisis. In emerging markets, rising corporate debt is also a concern, the IMF noted, as borrowing conditions are easing. And the problem is global, as similar fears have been raised about China’s corporate debt levels, too, according to PYMNTS.
The Financial Times reports have noted that corporates’ cash piles are fueling merger and acquisition deals, though capital expenditure has “flatlined” since 2012, making it difficult to see where debt payments could possibly come from. “We are particularly worried about the corporate sector, where leverage is rising, underwriting standards and some pockets of the corporate sector are deteriorating,” said IMF Director of Monetary and Capital Markets Tobias Adrian in an interview with CNBC, separate reports Friday said.
The general public often glazes over corporate and government debt, while focusing on racking up their own. In a normal economy, led by a free market system, this would be less of a concern. But we have anything but a free and healthy economy. In fact, ours is on life support being propped up only by the central banks and their unwillingness to pull the plug…just yet…