Click amount to donate direct to CounterPunch
  • $25
  • $50
  • $100
  • $500
  • $other
  • use PayPal
Keep CounterPunch ad free. Support our annual fund drive today!

Corporate and Financial Debt Soar to Pre-crisis Levels


There’s an excellent article in Thursday’s Wall Street Journal that details the ruinous impact of the Fed’s monetary policy. While the real economy has seen no benefit from the Central Bank’s zero rates and quantitative easing (QE), corporations and financial institutions have gone on a borrowing binge that has boosted their leverage to precrisis levels. Keep in mind, that it was the bursting of the gigantic credit bubble in subprime mortgage-backed securities (MBS) that imploded the global financial system triggering the deepest slump since the Great Depression, so you might think the Fed would want to avoid a similar mishap in the future. Au contraire! As the WSJ article confirms, the Fed’s lamebrain monetary policy has returned us to Square 1, the same place we were 5 years ago when the roof caved in and the whole bloody financial system came crashing down in a heap. Here’s an excerpt from the article titled “Financial Crisis Anniversary: For Corporations and Investors, Debt Makes a Comeback”:

“Five years after excessive debt propelled a housing-market collapse into a financial crisis and recession, similar bets are being placed across the U.S…..Leverage is getting back to where it was precrisis,” said Christina Padgett, head of leveraged finance research at Moody’s Investors Service….

Total corporate-bond debt has grown to nearly $6 trillion, up 59% since 2007, the year before the financial crisis……Leverage by companies rated investment grade has risen 20% since 2010 … about 6% higher than in 2008, according to J.P. Morgan Chase JPM -0.48% & Co. ….

Small investors are increasingly partners in the corporate-borrowing surge. In 2008, mutual funds held, on average, 17% of the bonds and 3% of the loans made to junk-grade companies, according to Bank of America. Today, they own about 26% of the bonds and 19% of the loans….

Assets in mutual funds and exchange-traded funds that invest in junk bonds have grown to $285 billion in July from $92 billion at the end of 2008, according to Morningstar.” (“Financial Crisis Anniversary: For Corporations and Investors, Debt Makes a Comeback”, Wall Street Journal)

So everyone’s piling into the debt markets in response to the Fed’s uber-accommodative policy, right? So while the Fed’s QE and zirp (zero interest rate policy) have had zilch effect on unemployment, the output gap, wages and income, consumer spending, aggregate demand, corporate investment or even inflation (which is still bobbing below the Fed’s 2 percent target); they have fueled a borrowing spree that’s pushed NYSE margin debt and stock prices to record highs, while junk bond yields have dropped to all-time lows. In other words, Helicopter Ben has inflated another ginormous stock and bond bubble that will eventually explode in a spectacular fireworks display leaving the financial system and the economy in tatters.

Hooray, for Bernanke, Ponzi-charlatan extraordinaire! Maestro must be green with envy. Here’s more from the article:

“Many companies are repeating some of the mistakes of the past,” by taking on too much debt, said Edward Altman, a New York University business school professor and the creator of a well-known tool for measuring corporate health, called the Z-score.

Mr. Altman said his latest forecast, which measures the probability of corporate defaults, showed overall corporate health was “no better than it was in 2007 and by some measures worse.” (WSJ)

Altman is obviously a party pooper. What does he know about self-balancing equilibrium of the free market? If debt is all that bad, then why are so many corporations and big banks loading up on more leverage all the time? Huh?

Could it be because zero-priced capital and $85 billion in monthly liquidity injections distort the pricing mechanism, drives down interest rates and sends investors scrambling for yield wherever they can find it? Could it be that Bernanke’s dogwhistle policies force risk-adverse fixed-income investors and penny-pinching retirees into volatile equities and other unsavory bets so they can make sufficient return on their life savings to keep the wolves away from the door?

Sure, it is. You see, Bernanke takes a two-pronged approach to the Fed’s “price stability” mandate. On the one hand, he keeps dumping enough Vodka into the punchbowl to keep everyone at the party permanently blottoed, and with the other, he puts a gun to the head of every cautious saver in the country who would prefer to keep his money in a deposit account, but is coerced by Bernanke’s zero rates to dive back into the equities sharktank where he’ll be stripped-to-the-bone by the Wall Street piranhas. Isn’t that the Fed’s policy in a nutshell? Here’s more from the article:

“Student loans, up 71% over the past five years, are approaching $1.2 trillion; in March last year, a third of the riskiest loans were more than 90 days past due, up from 24% in 2007, according to TransUnion LLC.” (WSJ)

Sure, let’s feed-off our young so we can keep Bernanke’s Three-Card Monte game going a bit longer. What difference does it make?

What a sick, twisted system. 12 million people can’t find work, wages have been stagnant for over a decade, 47 million people are on food stamps, household income is down more than 8 percent since 2000, consumer spending is on the ropes (personal spending rose a meager 0.1 percent in July), the homeless shelters are bulging, the food banks are maxed out, and the unemployment rate just dropped to 7.3 percent because–get this—another 312,000 workers threw in the towel and gave up looking for a job altogether. Get the picture: The US economy is in the shitter!

Meanwhile–while the financial system teeters and the country goes to hell– the geniuses at the Central Bank keep juicing the money supply and boinking rates to help their rich slacker friends get richer still. What a racket.

Mike Whitney lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. Whitney’s story on the Fed’s quantitative easing disaster appears in the August issue of CounterPunch magazine. He can be reached at

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at

More articles by:

2016 Fund Drive
Smart. Fierce. Uncompromised. Support CounterPunch Now!

  • cp-store
  • donate paypal

CounterPunch Magazine


Weekend Edition
October 21, 2016
Friday - Sunday
John Wight
Hillary Clinton and the Brutal Murder of Gaddafi
Diana Johnstone
Hillary Clinton’s Strategic Ambition in a Nutshell
Jeffrey St. Clair
Roaming Charges: Trump’s Naked and Hillary’s Dead
John W. Whitehead
American Psycho: Sex, Lies and Politics Add Up to a Terrifying Election Season
Stephen Cooper
Hell on Earth in Alabama: Inside Holman Prison
Patrick Cockburn
13 Years of War: Mosul’s Frightening and Uncertain Future
Rob Urie
Name the Dangerous Candidate
Pepe Escobar
The Aleppo / Mosul Riddle
David Rosen
The War on Drugs is a Racket
Sami Siegelbaum
Once More, the Value of the Humanities
Cathy Breen
“Today Is One of the Heaviest Days of My Life”
Neve Gordon
Israel’s Boycott Hypocrisy
Mark Hand
Of Pipelines and Protest Pens: When the Press Loses Its Shield
Victor Wallis
On the Stealing of U.S. Elections
Michael Hudson
The Return of the Repressed Critique of Rentiers: Veblen in the 21st century Rentier Capitalism
Brian Cloughley
Drumbeats of Anti-Russia Confrontation From Washington to London
Howard Lisnoff
Still Licking Our Wounds and Hoping for Change
Brian Gruber
Iraq: There Is No State
Peter Lee
Trump: We Wish the Problem Was Fascism
Stanley L. Cohen
Equality and Justice for All, It Seems, But Palestinians
Steve Early
In Bay Area Refinery Town: Berniecrats & Clintonites Clash Over Rent Control
Kristine Mattis
All Solutions are Inadequate: Why It Doesn’t Matter If Politicians Mention Climate Change
Peter Linebaugh
Ron Suny and the Marxist Commune: a Note
Andre Vltchek
Sudan, Africa and the Mosaic of Horrors
Keith Binkly
The Russians Have Been Hacking Us For Years, Why Is It a Crisis Now?
Jonathan Cook
Adam Curtis: Another Manager of Perceptions
Ted Dace
The Fall
Sheldon Richman
Come and See the Anarchy Inherent in the System
Susana Hurlich
Hurricane Matthew: an Overview of the Damages in Cuba
Dave Lindorff
Screwing With and Screwing the Elderly and Disabled
Chandra Muzaffar
Cuba: Rejecting Sanctions, Sending a Message
Dennis Kucinich
War or Peace?
Joseph Natoli
Seething Anger in the Post-2016 Election Season
Jack Rasmus
Behind The 3rd US Presidential Debate—What’s Coming in 2017
Ron Jacobs
A Theory of Despair?
Gilbert Mercier
Globalist Clinton: Clear and Present Danger to World Peace
James A Haught
Many Struggles Won Religious Freedom
Kollibri terre Sonnenblume
Dear Fellow Gen Xers: Let’s Step Aside for the Millennials
Uri Avnery
The Peres Funeral Ruckus
Tom Clifford
Duterte’s Gambit: the Philippines’s Pivot to China
Reyes Mata III
Scaling Camelot’s Walls: an Essay Regarding Donald Trump
Raouf Halaby
Away from the Fray: From Election Frenzy to an Interlude in Paradise
James McEnteer
Art of the Feel
David Yearsley
Trump and Hitchcock in the Age of Conspiracies
Charles R. Larson
Review: Sjón’s “Moonstone: the Boy Who Never Was”