Corporate Debt Projected to Swell to Over $75 Trillion by 2020

Jul 22, 16 Corporate Debt Projected to Swell to Over $75 Trillion by 2020

The average U.S. household carries an average of $129,579 in total debt, but that’s nothing compared to the projected amount of corporate debt the nation will be seeing in the next few years.

By 2020, corporate debt is predicted to swell to $75 trillion from its current standing at $51 trillion, according to S&P Global Ratings. Under normal circumstances, that level wouldn’t be a major issue on the condition that credit quality remains high, interest rates and inflation remain low, and economic growth persists.

However, that’s a best-case scenario. If those factors swing in the opposite direction, corporate America could face an issue of disastrous proportions as it seeks to manage its growing debt.

In a worst-case scenario, an impending “crexit” could be looming in the not-so-distant future. This would entail a withdrawal by lenders from the credit markets, and could contribute to sudden tightening of conditions and result in yet another financial nightmare.

However, corporate America’s issues are dwarfed by the ever-increasing mountain of the nation’s debt.

According to data released by the U.S. Treasury, the federal debt moved above $19.4 trillion for the first time as of the close of business on Tuesday.

In October 2015, Congress passed the “Bipartisan Budget Act,” which acted to suspend the legal debt limit until March 2017. President Obama signed the bill in November 2015.

Less than nine months after the President signed that bill, the federal debt has increased by $1,249,380,205,181.94.

“The public debt limit is suspended through March 15, 2017. On March 16, 2017, the limit is increased to accommodate obligations issued during the suspension period,” the Congressional Research Service summary states.

Though it accounts for debt on a national level, there will likely be no government intervention to stem the flow of corporate America’s tidal wave of debt.

Despite the rapidly increasing debt, central banks have been hesitant to pump the brakes at all. Interest rates remain low globally, generating a sharp increase in both corporate and government debt.

“Central banks remain in thrall to the idea that credit-fueled growth is healthy for the global economy,” S&P said. “In fact, our research highlights that monetary policy easing has thus far contributed to increased financial risk, with the growth of corporate borrowing far outpacing that of the global economy.”

The debt boom has raised concerns about the quality of credit, as well as the futures of countless bond-holders. If there is, in fact, a worst-case scenario in the works, they could be in serious trouble.

“Indeed, the credit build-up has generated two key tail risks for global credit. Debt has piled up in China’s opaque and ever-expanding corporate sector and in U.S. leveraged finance,” the S&P report stated. “We expect the tail risks in these twin debt booms to persist.”

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