The Return of Private Debt

The Return of Private DebtIt’s not only the government that is in over its head in debt. While all the talk around the nation is centered on the federal debt, private debt is now soaring to great heights. The $17 trillion federal deficit may be big but household debt is not far behind at $13 trillion.

It was thought that the debilitating 2008 subprime mortgage crisis might incite consumers to spend with more caution. However, it now seems Americans are back to their old habits. From consumer debt to student loans, all the indicators show a veritable deluge of debt.

Subscription5.2At the same time, corporate debt issuance has also surged. Buoyed by low interest rates, companies are issuing record amounts of high-yield (junk) bonds as well as investment- grade debt. Such credit positions on the part of both consumers and corporations may prove dangerous if economic growth does not keep pace. It seems the lessons of the past are hard to learn.