By F. William Engdahl and cross-posted from New Eastern Outlook
Most of the world has an image of the United States as the one country of the advanced industrial world that took consequent action in the wake of the March 2007-September 2008 financial crisis. The result, we are carefully led to believe—via the politically ever-correct mainstream media like The New York Times or the CNBC financial network or Bloomberg—is that American banks and corporations today are back on their feet, healthy, robust.
We are led to believe that eight years of Obama Administration economic genius have produced near-all-time low unemployment as the US leads the way among the G-7 to healthy growth. Only one thing wrong with this picture—it’s a complete, fabricated lie, fabricated by Washington with the collusion of the Wall Street banks and the Federal Reserve. The reality is pretty scary for those living in ignorance. The cracks now emerging in an unprecedented level of US corporate debt are flashing red alert on a new economic crisis, a very, very ugly one.
Nobel economics laureate Paul Krugman once made the stupid argument that “debt doesn’t matter.” Dick Cheney back during the 2002 Washington budget debates over the wisdom of making new tax cuts amid huge costs to finance the new Washington War on Terror, made the equally stupid comment, “Reagan proved that deficits don’t matter.” In the real world, where debts of private households, of governments like Greece or Portugal or Detroit City, or private corporations like Chesapeake Energy or General Motors, effect jobs, technology, entire communities or nations, debt certainly does matter.
Corporate Debt Time Bomb
Even more dangerous than the enormous rise in US National Debt since 2000, to levels today of over $19 trillion or 108% of GDP, is the alarming rise since 2007 in US debt of corporations, excluding banks. As of the second quarter of 2015 high-grade companies tracked by JPMorgan Chase paid $119 billion in interest expenses over the year, the most in debt service costs since 2000. Disturbing is that that was despite record low debt borrowing costs of 3%. US corporations took advantage of the Fed’s unprecedented near-zero interest rates to borrow up to the hilt. It made sense were the economy really improving. Now with a significant recession looming in the USA, the debt is suddenly a problem. i This is the true reason the Fed is unable to raise interest rates beyond the purely symbolic 0.25% last December. The US corporate debt pyramid would topple. Yet the zero interest rates are wreaking havoc for those investors or insurance companies invested in bonds for “security”…