Does the rising level of non-financial corporate debt signal an incipient recession as suggested at Business Insider:
According to Joe LaVorgna of Deutsche Bank, however, in addition to slowing jobs growth and weakening economic data, there is a huge reason to worry about a recession: debt.
“The corporate sector has taken on a substantial amount of debt in the current business cycle,” LaVorgna wrote in a note to clients. “Non-financial corporate debt has increased by $2 trillion from its trough in Q4 2010.”
Let me provide another explanation that’s not so gloomy. Corporations think that interest rates tomorrow are likely to be higher than they are today so, if you’re thinking about borrowing, today is a pretty good time.
Make no mistake, ultimately we’ll have another recession and, given the historical experience, it will be reasonably soon. This year. Maybe next.
What’s not within the historical experience is a recovery that’s as long and weak as the present one, with interest rates so low for so long.
I suspect your explanation is closer to reality. I know of no causal relationship between debt to GDP of 42-45% signaling recession, while 38-40% is ok. The way corporate finance decisions are made, debt financed projects may be suspended as recessionary concerns emerge. That’s the order of events.
As for your assertion, the recap phenomenon was real. When you don’t have good investment opportunities, and you have debt capacity, you can borrow and return capital. All the more so when the cost of debt capital is cheap. Yet another Fed distortion.
Yeah, that’s something that I don’t think has received nearly enough attention. A lot of formerly publicly held companies have used the super-low interest rates to go private again.
Yet another Fed distortion.
Add in enough distortion and no one will know what’s going on. It rather seems the point at this stage, as Fed policies aren’t working as advertised.