The Washington Post of November 30 reported that a decade of low interest rates has allowed companies to sell record amounts of bonds to investors, sending total U.S corporate debt to nearly $10 trillion, or a record 47% of the overall economy.  The Federal Reserve, the IMF and major institutional Investors are concerned that the financial markets will plunge when the next recession hits, making that recession dire.

You guessed it – it has been the financially weakest companies that are the worst culprits, using debt for “financial risk taking”, upping investor payouts and Wall Street deal making rather than productive plant and equipment.  In September alone US corporations issued $220 billion in new bonds, the biggest figure in two years. Over the last five years corporations have spent $3 trillion in buying back their own shares.  Interest rates have never been this low for so long. An artificial environment of near- free money has kept alive some debt ridden “zombie” companies that really would have failed under normal circumstances.

The Washington Post article gave other examples of the craziness. The fact is that the situation is like sitting on a bomb and not knowing what will trigger the explosion.

So here we have the golden boys of the Harvard Business School and the like playing roulette with the US ( and World!) economy – and they are supposed to be smart?  Have you read the last post  ( this one was delayed by a local internet access failure) about individual debt?  Two perfect storms!  Had all these jokers, corporate and private, heartened to the words of Epicurus – be moderate – we wouldn’t be trying to guess when the next financial collapse is going to happen.

Oh, and this has everything to do with mass common sense ( or lack of it) and nothing really to do with party politics.

According to Equifax the value of unsecured personal loans in the US is up 10% in the last year alone and is similar in size to credit card debt, averaging $16,259.  In view of the currently healthy economy  and increasing wages for some, this is a bit counter-intuitive.  But, whatever the reason, in banking , if it is growing like a weed  it is probably a weed.

US consumer debt in general has reached the record level of $115 billion, helped along by a plethora of new online lenders, who apparently don’t ask too many questions of the 20 million people who use their services.  The payments, and repayment dates,  are fixed and it appears that many borrowers use this personal borrowing in order to consolidate debt, often debt on multiple credit cards. But if anything goes wrong (a serious illness, for instance) then the lenders return to borrowing on their credit cards again, in addition, creating a spiral of debt.

Meanwhile, the national auto loan debt totals $1.3 trillion and credit card debt $880 billion.  Total it all up and you get close to the levels of January 2008.  (By the way the the personal debt lenders cap their interest at 36%, which I would call usury) .

You can guess what word I am going to use:  yes, “moderation”!  When it comes to money – lending it or borrowing it – nothing ever seems to stay moderate for long.