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Another Opinion Pronounces Corporate Debt Very Dangerous

May 1, 2017 (EIRNS)—After weeks in which the American public and Congress were getting no warnings whatsoever of the looming corporate debt bubble meltdown here, a stock market newsletter has pointed to what EIR is warning of.

ETF Daily News ran an analysis, "These Sectors Are Most Vulnerable as Corporate Debt Reaches Record Level," which used charts from the recent International Monetary Fund "Global Financial Stability Report, 2017."

"U.S. companies have added a whopping $7.8 trillion of debt and other liabilities since 2010.... And in just seven years!", the newsletter reported. "Debt is piling up so fast that it’s nearing the bloated debt levels not seen since the 2008 financial crisis.... When that kind of cash is added at super-low interest rates—unsustainable super-low interest rates—then things get nasty rather quickly for corporate balance sheets when interest rates tick higher.... Since the Federal Reserve began normalizing rates, corporate credit fundamentals have weakened big time. And that’s created the conditions that historically precede a credit-cycle downturn"

—a euphemism for a debt meltdown.

The author uses IMF charts to point out that U.S. companies’ interest-coverage ratios—their ratio of earnings to interest payments—are falling fast and have reached the level of about 4.5 characteristic of the 2001 recession and 2008 crash, whereas after years of zero interest rates, the opposite should be happening; their leverage ratios have reached record highs.

Meanwhile in Canada’s superinflated housing market, the failure of Home Capital has produced its first clear contagion, a run on Canada’s Equitable Group mortgage bank.