The Dark Cloud Of Global Debt… The Perfect Storm Looms (Source Zero Hedge)
While everyone is debating the effects of possible trade sanctions on the global economy, few are paying attention to a far more serious issue. Enormous global debt, combined with low-interest rates, have set the stage for a global recession that has the potential for economic chaos.
Countries such as Brazil, India, and China have been busy issuing questionable credit. This dubious credit being issued in many emerging markets has come with extremely low-interest rates. If the borrowers’ default, the lenders won’t be looking at enough compensation to recoup their loses. Low-interest rates have become an overall global problem, including the rates in the U.S. high-yield bond market. Central banks around the world have been keeping interest rates artificially low while printing money with abandon. The current global debt is the direct result of this policy. $2 trillion in corporate debt will be maturing annually through 2022. A considerable amount of this debt may default and cause debt repricing. The damage caused by central banks and their policy of easy credit has been done, and there is little that can be done at this point to stem the tide. It can only be hoped that they are more aware now than they were in 2008.
Just prior to 2008, during the halcyon days of easy mortgages, homeowners jumped onto the debt bandwagon by refinancing their homes and incur more than $300 billion in debt as the value of their properties increased. Many used their new-found wealth to purchase furnishings, automobiles, vacations or reinvest in the stock market. By the time anyone realized that the homes and stocks were highly overvalued, the stock market took a tumble, major lenders declared bankruptcy, and the world suffered through a massive recession.