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Corporate debt, fiscal stimulus and the next recession Michael Roberts
The debt owed by corporations in the major economies has risen since the end of the Great Recession in 2009. With global growth slowing and the prospect rising of an outright global recession recurring ten years after the last one, the debt held by corporations may soon become so burdensome to a sufficiently large number of companies that it triggers a round of corporate bankruptcies. The banks will then see a sharp rise in non-performing loans. That could lead to a new credit crunch as banks refuse to lend to each other.
Such a credit squeeze briefly erupted last month, when the US Federal Reserve was forced to inject over $50bn into the banking system in order to reverse a very sharp rise in inter-bank interest rates as cash-flush banks refused to help out weaker ones. The cause of that squeeze was a rise in the supply of government bonds as the Trump administration issued more to cover its rising budget deficit. Some banks were not able to fund the purchases they were committed to without borrowing.
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