Once the debt reaches a critical mass, the game is over and according to the IMF, the source of the next financial crisis may be corporate and household debt. Can you imagine the Fed bailing out spendthrift consumers ? Here's more on the debt:
October 10 – Bloomberg (Claire Boston): “Working-class Americans devoted a growing percentage of their income toward paying their debts last year, the first increase since 2010 and a shift that is likely contributing to rising default rates, Moody’s… said. The families’ debt burdens are still relatively low compared with earnings-- less than they’ve been for most of the last three decades… But the borrowers are accumulating more debt even as the economy continues its recovery, which could create problems for lenders if U.S. growth slows, said Jody Shenn, a senior analyst at the bond grader. ‘We are seeing signs of the credit cycle turning,’ Shenn said… It’s important to look out for signs of stress ‘and think about the implications when the economy does hit a rough patch.’”
October 11 – Financial Times (Shawn Donnan): “The International Monetary Fund has warned that good times in the global economy mask longer-term risks, including a $135tn debt pile in G20 nations that companies and consumers are already finding difficult to service. A day after upgrading its global growth forecasts for this year and next the IMF warned… that benign economic conditions were fuelling an appetite for risk that, together with central banks’ response to the 2008 global crisis, appeared to be laying the ground for a new financial crunch. ‘While the waters seem calm, vulnerabilities are building under the surface [and] if left unattended, these could derail the global recovery,’ said Tobias Adrian, of the IMF’s financial stability watchdog… The US and China each accounted for about a third of the $80tn increase in debt since 2006, the IMF said.”
October 10 – CNBC (Evelyn Cheng): “The next global economic slowdown could come from rising risks outside the banking sector, according to the International Monetary Fund. Leverage in the nonfinancial sector for G-20 economies as a whole has surpassed its pre-crisis high, the IMF said… in its Global Financial Stability Report. Nonfinancial sector debt refers to borrowing by governments, nonfinancial companies and households. The total level of that debt for G-20 economies rose to $135 trillion, or about 235% of aggregate gross domestic product in 2016, surpassing the debt-to-GDP ratio of 210% in 2006, before the financial crisis…”
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