In the September issue of Boom & Bust, I talked about corporate debt being the greatest threat globally this time around. The worst is in the emerging world that used cheap printed dollars from the developed countries, primarily the U.S., to fund a debt binge concentrated in the corporate sectors. But our corporate sector also added a lot to their debt and only 39% of their bonds are investment grade, with 39% BBB and 22% junk.

Last time the bigger binge was by consumers playing the great housing bubble. With low rates and a good economy, why not buy a bigger house, or a vacation house, or speculate in a few to rent out and/or flip.

Consumer Debt 

So, I’ll start with consumer debt and a slide from David Stockman’s presentation at our recent IES conference in D.C.

Stockman remarked that consumers had transitioned from a more historical level of debt leverage of 80% up to 180%. In this chart, total consumer debt has grown 505% today at $15.5T (trillion) from its $2.6T in 1987. In the 13 years up until 2000, it grew 162% to $6.8T.

Then the real bubble hit starting in 2000 when stocks crashed and people switched to speculation in real estate . Their debt grew 112% in just 8 years to $14.4T in 2008. It backed off with minor deleveraging to $13.5T in 2012 and then grew a much more sober 17% into now, 2019.

Hence, households have not been the big borrowers this time around.

The Corporate Side 

 

This chart goes back to 2000. In the last bubble corporate debt went from $6.2T in 2000 to $10.6 in 2008, up 71% and less than that 112% for consumers. That debt fell modestly to $10.0T and then grew a not sober 57% to $15.7T. It is now near total consumer debt at $15.8.

But the growth rate since 2000 has been higher overall for the corporate sector, 153% vs. 132% for consumers.

Again, consumer debt grew more from 2000 to 2008 and corporate debt more from 2010 to 2019. Consumers speculated more on housing in the first bubble and corporations did worse this time around. They speculated on their own stocks: $5.7T since 2009! Oh, that’s the exact amount of the net debt increase since then.

Housing fell 34% last time and could fall closer to 50% this time. But those corporate stocks could fall 80%+. How foolish the corporate CEOs and boards will look… the dumbest money in history – not for shoe shine boys anymore.

So, who’s going to be more in trouble this time around with 61% of their corporate bonds not investment grade – BBB or less including 22% junk bonds?

New Update on the Markets!

Harry Dent shares details on his latest prediction for the markets and the new dangers that lie just ahead for Americans:   “This is no longer a question of ‘if,’ but simply a… Read More>>
Harry Dent
Harry S. Dent Jr. studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of his chosen profession that he turned his back on it. Instead, he threw himself into the burgeoning new science of finance where identifying and studying demographic, technological, consumer and many, many other trends empowered him to forecast economic changes. Since then, he’s spoken to executives, financial advisors and investors around the world. He’s appeared on “Good Morning America,” PBS, CNBC and CNN/Fox News. He’s been featured in Barron’s, Investor’s Business Daily, Entrepreneur, Fortune, Success, U.S. News and World Report, Business Week, The Wall Street Journal, American Demographics and Omni. He is a regular guest on Fox Business’s “America’s Nightly Scorecard.” In his latest book, Zero Hour: Turn the Greatest Political and Financial Upheaval in Modern History to Your Advantage, Harry Dent reveals why the greatest social, economic, and political upheaval since the American Revolution is on our doorstep. Discover how its combined effects could cause stocks to crash as much as 80% beginning just weeks from now…crippling your wealth now and for the rest of your life. Harry arms you with the tools you need to financially prepare and survive as the world we know is turned upside down! Today, he uses the research he developed from years of hands-on business experience to offer readers a positive, easy-to-understand view of the economic future by heading up Dent Research, in his flagship newsletter, Boom & Bust.