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Debt Bubble Is Made More Dangerous by Zero Economic Growth

April 28, 2017 (EIRNS)—With a stock market levitating on $14 trillion in increasingly unpayable U.S. corporate debt, the Commerce Department today again reported virtually no growth—and certainly no productive growth—in the U.S. economy. The 0.7% first quarter "growth," made of oil exports, continued the trend of no-growth President Obama into President Trump’s first year. And now the briefly-risen oil price is falling again, along with every real measure of the American productive economy.

With "quantitative easing" and zero-interest money- printing/-lending by Trilateral central banks now in its tenth year—and still printing money at the annual rate of $1.7 trillion—a huge bubble of debt has expanded, dominated by $14 trillion in U.S. corporate debt alone, up 75% from $8 trillion in 2008, with now nearly $9 trillion in commercial mortgage-backed securities (CMBS). Now rising defaults, and suddenly curtailed credit for commercial, industrial, and auto loans, indicate the bubble is heading towards a collapse.

A new report on corporate debt defaults by Standard & Poor’s (covering only companies with credit ratings) finds:

"Despite oil prices rising for most of the year, the energy and natural resources sector had increased default activity over an already elevated 2015, and the sector accounted for over 50% of all defaults in 2016. This helped push the corporate default count up to 162—the second consecutive year since 2009 with over 100 defaults.... These 162 defaulted issuers accounted for $239.8 billion in debt, which is more than double the $110.3 billion total for 2015."

That 2015 rate was already equal to that of 2007; 2016’s rate was the highest since the collapse of 2009. S&P’s report is global; but 68% of all the debt originated in U.S.-based banks.

Suddenly this week, the largest non-bank mortgage lender in Canada’s superheated real estate market has collapsed, with its stock plunging by 65% on Wednesday and bailout talks going on. A "shadow bank" which might be called the Countrywide Financial of Canada, Home Capital/Home Trust, has a $20 billion mortgage book. Though this is small compared to the $1.35 trillion Canadian mortgage bubble, which in turn is dwarfed by the $11 trillion U.S. mortgage bubble of 2007, it could start a series of triggers due to the participation of Wall Street’s "Big Six" in that mortgage bubble.

"Home Capital contagion has spread to the entire mortgage market, particularly alternative mortgage lenders," a National Bank of Canada analyst wrote April 27 when downgrading other shadow banks.

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