Beware the Debt Bomb
Brett Arends reports:
For the past five years, U.S. corporations have been living in a financial paradise. Interest rates have been on the floor. Wages have been flat. Companies have been able to lay off workers and slash costs. Profits have skyrocketed to record levels. And they’ve spent almost nothing on new capital equipment, either.
And what effect has this had?
In 2007, at the peak of the last credit mania, U.S. nonfinancial corporations owed $7.2 trillion according to data compiled by the U.S. Federal Reserve.
Today? After years of this bonanza, those debts have tumbled all the way down to… er… $9.6 trillion.
All that talk you hear about how corporate balance sheets are in great shape is a bunch of hooey.
By the time that aging capital equipment absolutely must be replaced, interest rates will probably be significantly higher.
That could lead to... issues.