Federal Reserve warns about surging corporate debt, ‘elevated’ asset prices
May 7, 2019 By Andrew Moran Leave a Comment
Debt is a major issue that will send the entire economy into a downward spiral. Everyone is in debt: households, governments, and businesses.
While everyone is aware of the ballooning debt levels impacting consumers and government, many are unaware of just how immense the debt is for the private sector.
The Federal Reserve sounded the alarm in a new report that tackles financial stability. It concluded that asset prices are “elevated” and corporate debt is sitting at historic highs. According to the central bank, there has been a 20 percent increase in leveraged loans between the beginning of 2018 and the start of 2019.
According to the Fed, the ratio of debt to assets among publicly-traded companies (excluding the financials) is at a 20-year high. Also, the share of new loans going to the most indebted businesses has surged to near peaks during the Great Recession.
Is it time to panic? Not yet, notes the Fed.
Officials say the system is healthy, but corporate debt levels should be paid attention to, notes Fed Governor Lael Brainard.
“With financial volatility easing since the end of last year, the Federal Reserve Board’s Financial Stability Report suggests stretched asset valuations and risky corporate debt merit continued vigilance against a backdrop of low-to-moderate vulnerabilities in the household and banking sectors,” Brainard told Reuters.
In many markets, corporate debt is a burdensome issue, particularly in China, where many experts say the economy could crash if more corporations default on their U.S. dollar-denominated debts.
What’s interesting about this report, though, is that the Fed completely omits responsibility for facilitating rising corporate debt and artificially high stock prices.
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