Global Economics

Ticking Time Bomb of Record High Corporate Debt

The Fed released its "Z1" report today on Household Net Worth and Domestic Nonfinancial Debt. Let's dive into debt.

Bloomberg reports U.S. Business Debt Exceeds Households' for First Time Since 1991.

With the record-long expansion in its 11th year, Fed policy makers have indicated in recent months that they’re watching the corporate debt situation closely. Chairman Jerome Powell said in October that “leverage among corporations and other forms of business, private businesses, is historically high. We’ve been monitoring it carefully and taking appropriate steps.”

Hello Fed, I have a Question

Uh.. Pardon me for asking, but could you please explain the "appropriate steps" that you have taken?

Thank You.

Financial Accounts of the US

With that pertinent question out of the way let's take another dive into the details of the Fed's Z1 report on the Financial Accounts of the United States.

Seven Key Details

  1. ​The net worth of households and nonprofits rose to $113.8 trillion during the third quarter of 2019.
  2. Domestic nonfinancial debt outstanding was $53.9 trillion at the end of the third quarter of 2019, of which household debt was $16.0 trillion, nonfinancial business debt was $16.0 trillion, and total government debt was $21.9 trillion.
  3. Domestic nonfinancial debt expanded 6.3 percent at an annual rate in the third quarter of 2019, up from an annual rate of 3.1 percent in the previous quarter.
  4. Household debt increased 3.3 percent at an annual rate in the third quarter of 2019. Consumer credit grew at an annual rate of 5.1 percent, while mortgage debt (excluding charge-offs) grew at an annual rate of 2.7 percent.
  5. Nonfinancial business debt rose at an annual rate of 5.7 percent in the third quarter of 2019, up from a 4.4 percent annual rate in the previous quarter.
  6. Federal government debt increased 10.4 percent at an annual rate in the third quarter of 2019, up from a 2.1 percent annual rate in the previous quarter.
  7. State and local government debt expanded at an annual rate of 0.5 percent in the third quarter of 2019, after contracting at an annual rate of 2.5 percent in the previous quarter.

​I picked up that lead chart idea from Sven Henrich.

Here are a few Tweets to consider.

Fed Balance Sheet

Credit Card Defaults

Corporate Profits

Bond Buying

Everything is Fine

Where?

Everywhere.

The Fed clearly has everything under control.

Please consider Fed Brainwashing on Net Wealth in One Picture.

Mike "Mish" Shedlock

53 Responses

  • JanNL

    Dec 13, 2019

    Lead chart should be ratio chart. As shown somewhat useless apart from showing growth of both items.

  • Harry-Ireland

    Dec 13, 2019

    I like Sven Henrich. He's on it, every single day. And Jeffrey Gundlach was talking about corporate debt as well, in his CNBC interview this week. And Michael Burry too. Luckily, CB's around the world are handling the situation with a firm hand and responsible policies. Nothing to see here, folks!

  • Roger_Ramjet

    Dec 13, 2019

    It's not only the rise in corporate debt, but that problem is being compounded by the decline in corporate equity, courtesy of stock buybacks, highlighting the extent that corporate balance sheets are being hollowed out (which primarily benefits the insiders and directors). Shareholders are paying a higher and higher price for a shrinking slice of shareholder equity.

  • Greenmountain

    Dec 13, 2019

    And likely to be a very good day for growing bubbles.

  • ZZR600

    Dec 13, 2019

    Surely a better comparison is the cost of this debt to corporations, rather than the level of outstanding debt? With record low interest rates, long dates or perpetual bonds at 0% are hardly a problem for a company, unless they rely on having to always issue new debt to fund operations?

  • Harry-Ireland

    Dec 13, 2019

    All this is caused by central bankers. The damage they've done and continue to do is not even fully visible, but it's beyond repair. Just look at the past decade of zero growth in the EU, whilst government debt and private debt -due to assetbubbles- has risen dramatically. A decade of wealthtransfer from savers to speculators and still, they double down and implement more of the same. The Overton window needs to be on the destruction these fucking bankers are allowed to create. Time to educate the sheeple who've been lulled to sleep and distracted with tech-bullshit and vapid consumerism.

  • Tony Bennett

    Dec 13, 2019

    "Uh.. Pardon me for asking, but could you please explain the "appropriate steps" that you have taken? Thank You." ... Spot On. Doing ANY sort of "appropriate steps" = Taking Away The Punch Bowl Therefore, ZERO will be done - lest you be blamed for causing the bubble to burst. Banksters will do what they ALWAYS do - look the other way until the inevitable crisis - then step in and try to clean up the mess.

  • Tony Bennett

    Dec 13, 2019

    "The last time corporate profits stagnated while corporate debt accelerated higher was during 2000 just before the recession in 2001." ... A mention needs to made on quality of corporate debt. The reach for yield by investors has led to surge in covenant - lite leveraged loans among other dreck. Has kept the expansion truck on the road well past historical expiration ... but will make the inevitable crisis deeper / longer.

  • thimk

    Dec 13, 2019

    Asset stripping on a grand scale . We are witnessing the liquidation of USA corps. And you thought American ran on Dunkin' !

  • RonJ

    Dec 13, 2019

    "Does anyone spot a problem?" Looks like a typical parabolic chart. The far left side of the chart looks little better than a flat line. The tread mill then starts running faster and faster, eventually ramping up to maximum vertical velocity. Then the chart breaks down.

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