There was a time in the last several decades that prime interest rates in the U.S. were in the mid-teens. Debt was expensive and, consequently, discouraged.
Over the past several decades we’ve gone from a nation of savers who paid cash for things including homes and cars to a nation of spenders who use debt like mortgages, car loans and credit cards to pay for things. "Corporate debt was $3.5 trillion– in 2007, arguably a period and– many would describe as bubbly. It’s 7 trillion now. So it’s gone from 3.5 trillion to 7 trillion. As you know, most of that mix has been in more highly leveraged stuff, Covenant-Lite loans– high yield, that’s where the majority of the rise has been. And if you look at corporations have been using it for, it’s all financial engineering.” -Stan Druckenmiller. "In the past 20 to 30 years, credit has grown to such an extreme globally that debt levels and the ability to service that debt are at risk, relative to the private investment world. Why doesn’t the debt super-cycle keep expanding? Because there are limits.” -Bill Gross.
At one quadrillion yen, the Japanese debt level is so high that it now takes the government 43% of its central tax revenue just to pay interest this year. Back in August 2014, yield-starved bondholders were delighted to give American Eagle Energy $175 million in cash; the company promised them an 11% annual cash coupon. Now, seven months later, the company is in default.
Over the past several decades we’ve gone from a nation of savers who paid cash for things including homes and cars to a nation of spenders who use debt like mortgages, car loans and credit cards to pay for things. "Corporate debt was $3.5 trillion– in 2007, arguably a period and– many would describe as bubbly. It’s 7 trillion now. So it’s gone from 3.5 trillion to 7 trillion. As you know, most of that mix has been in more highly leveraged stuff, Covenant-Lite loans– high yield, that’s where the majority of the rise has been. And if you look at corporations have been using it for, it’s all financial engineering.” -Stan Druckenmiller. "In the past 20 to 30 years, credit has grown to such an extreme globally that debt levels and the ability to service that debt are at risk, relative to the private investment world. Why doesn’t the debt super-cycle keep expanding? Because there are limits.” -Bill Gross.
At one quadrillion yen, the Japanese debt level is so high that it now takes the government 43% of its central tax revenue just to pay interest this year. Back in August 2014, yield-starved bondholders were delighted to give American Eagle Energy $175 million in cash; the company promised them an 11% annual cash coupon. Now, seven months later, the company is in default.
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