The U.S. is once again caught in a credit trap – Bloomberg warns of an impending era of default

Now in the U.S. there is less talk about the financial consequences of the coronation crisis, which is a very dangerous mistake.

The U.S. is once again caught in a credit trap - Bloomberg warns of an impending era of default

The Bloomberg agency writes about it.

The media emphasize that now the country’s authorities should pay special attention to financial problems. Although the U.S. Federal Reserve has done “excellent work” to maintain markets, very soon the question will be not whether borrowers can take loans, but whether they can pay for them.

The situation is aggravated by the fact that, at the start of the pandemic, non-financial corporate debt in the United States was already $10.5 trillion, or 48.7 per cent of gross domestic product. This figure is the highest since 1950. Moreover, an impressive share of debt consists of bonds issued by companies with the lowest investment ratings.

In fact, the fate of the American economy is now in the hands of chance, because it directly depends on how soon the coronavirus pandemic will end. Only it is not in a hurry to retreat, the states are again forced to introduce quarantine measures, and borrowers without income are behind in repaying loans.

Today, the U.S. has over $1 trillion in mortgage debt. The share of car loans and credit cards is 7% and 3.7% respectively. At the same time, defaults on credit loans are estimated at $1.2 trillion, according to Bloomberg.

Sooner or later the government will have to take action, and it will be very lucky if the bankruptcy can be “swallowed up” by the Federal Reserve program. Investors can also take the blow. However, if the debts end up on the balance sheets of systemically important financial institutions that lack equity capital, they could cause stress that would exacerbate an already deep recession.


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