We find the largest debt to GDP levels in China and India, which is why I see China more as more illusion than threat. China has a demographic imbalance between workers and retirees which is several-fold worse than the US or Europe - and China has absolutely no hope of ameliorating this problem with immigration due to the massive numbers involved.
On a smaller scale, debt is also why I like firms like Chevron, Google and Amazon whose debt levels are quite small relative to income.
It's difficult for me to make sense of firms which pay big dividends while carrying crushing debt loads. Court magicians point to various ratios explaining how solid this management style is, but I don't understand it.
Recently Chevron was in the uncomfortable position of needing to borrow money to pay their increasing dividend for a couple of years until their major LNG projects in northern Australia came on line. Although this was a short-term shortfall in cash-flow, this borrowing was extremely controversial as those associated with Chevron were concerned this might set a precedent.
The reality of bank failures in 2008 led to the long postponed, and long overdue, introduction of larger capital requirements for banks. A recent Fed simulation of ten percent unemployment predicted large losses at the 35 largest banking firms, but all remained financially stable - and that's an important change. Since 2009, these banks have added $800 billion in common equity capital.
But I still would not want to be invested in anything leveraged to the Chinese economy.
We've run out of other people's Social Security taxes needed to subsidize our low income tax rates.
