Corporate Debt Could Take Down the Economy!



there's a story in the Financial Times here that falls into the category of watch this space very carefully there are certain leading indicators back in 2007 I was talking about the collapse in housing prices and how this was not a good thing this this could take down the economy and turned out I was right and now you know I've been saying look watch corporate bond funds what with you know we're seeing the bubble reinf lated over the last seven years and it's been reinflates tourism for lack of a better word bye-bye companies doing mergers just to jack up their share prices by companies doing stock buybacks over 90 percent of the low interest rate money that was borrowed by big corporations in the last seven years which should have been used to expand operations and hire people and build new factories over ninety percent of it was used for stock buybacks so that they could inflate stock prices and increase the compensation going to the CEOs and the largest stockholders and the senior executives so we've got this problem which is that the bubble may burst I mean Donald Trump said it last week right or the bubble may crash to parity which is the quote Donald Trump and also the title of my book the crash of 2016 and so the question is what what is the leading indicator and as I pointed out there's this massive amount of corporate debt out there it's over 50 trillion dollars in the United States massive amount of corporate debt out there which by the way is three or four times the GDP of the United States and that corporate debt it takes the form of corporate bonds and there's what are called high-yield bonds which are often referred to as junk bonds in other words corporations who have a sketchy enough credit history that they have to pay higher interest rates in order to get people to loan them money and then there's you know the investment grade bonds the triple-a bonds and there's a lot of OHS out there and those are bonds of you know the traditional companies that are considered stable and what's happening is that in both cases when people buy into these exchange-traded funds these ETFs these funds that that say okay if we've got a billion dollars in our fund we'll buy a billion dollars worth of corporate bonds but if we've got two billion dollars in our fund we'll buy two billion dollars for the corporate fund so you put money into our fund and you're essentially buying corporate bonds the problem is when you take your money out of their fund they have to sell those corporate bonds and if they can't find buyers for those corporate bonds then they can't pay you back your money this is called a liquidity problem liquidity meaning they got the cash to pay you back and if enough people start redeeming their money out of these funds at a fast enough rate that the funds can't sell off their bonds particularly as people are losing faith in corporate bonds they're they're looking at a crash coming down the road then these bond funds this could be a massive disaster particularly since most of these funds to the best my knowledge none of these funds are actually federally guaranteed so if you're out you're out this is Robin wiglesworth the US markets editor the headline fund to failure exacerbates liquidity fears corporate debt has been one of the slam dunk investments rights Robin of the post-financial crisis era handy and investors juicy and stable returns as a result billions of dollars of gushed into the market but some fear the party is about to result in an epic hangover and the you know goes on from there with charts and graphs and all kinds of stuff but if there's one thing to keep an absolute eye on right now it's these corporate bond funds and how they're doing and as their value starts to drop and as corporate interest rates start going up and as more and more companies in the United States declare bankruptcy particularly in the energy sector right now because of the policies of Saudi Arabia keeping the price of oil low it's we're getting in one of those times where it's probably a good idea to be be very careful as they say be very very careful to watch more clips from our programs hit the watch more videos button over here and please be sure to hit the handy-dandy subscribe button so always be up to date tag you're it

13 Comments

  • How can we use this and make profit?

  • What actions could have been taken with the low interest rate policy so that corporations wouldn't not have spent that on mergers and stock buy backs

  • so corporate debt and corporate bonds will bring down the economy, but government debt and government bonds are good for the economy, and are necessary for retirement? my kids will be forced to pay the debt and interest of previous generations, at least if a corporation fails, only those who chose to buy into lose money.

    look up Thoms videos on government debt for context. that's basically what his position is.

  • Thom please go 16:9 720p, and do a little clickbaiting. You get a hell allot more views then!

  • 50 trillion? Where did you get that number from?

  • The CEOs have ripped out the real value of there companies, hidden it away in off shore accounts and they are all just about to get on there private jets and leave the country burning behind them.

  • Isn't this quite literally what "The Big Short" movie is about?

  • more like fiat currency

  • They may not be federally insured, but you know the banksters are gonna go to the feds again with their hand out.

  • Hey thom I just found your channel & would like to thank you for all the hard work you put into it

  • if interest rates are below 2%, then no crash happens

  • …it's already happened to these funds and central banks have bought them, hence the 2008 financial crisis. if central banks act in concert to devalue currency with zero interest loans to our corporate monarchs then the poor will keep being flushed out as they have been systematically for nearly the past decade.

  • This sounds very similar to the situation with the South Sea Trading Company in Britain in the 1700's.

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