Citing data from national statistics offices, the Financial Times reported on Monday: The world’s corporate sector has been hit by a wave of bankruptcies occurring at a double-digit pace unseen in decades,.
Business insolvencies in the U.S. saw a year-on-year surge of 30% in the 12 months through September, while in Germany, the EU’s biggest economy, the number of reported bankruptcies increased by 25% from January to September compared to the same period a year ago.
Across the EU, the number of companies going bust grew 13% in the nine months to September year-over-year, hitting an eight-year high.
In October, France, the Netherlands and Japan saw the number of bankruptcies rising by more than 30% versus the same month a year ago. The OECD group of mostly wealthy states has recently reported that in some member states, including Nordic nations Denmark, Sweden and Finland, bankruptcy rates have exceeded levels reached during the 2008 global financial crisis.
England and Wales also saw insolvencies reaching their highest level since 2009 in between January and September of the current year.
The trend has been strongly fueled by higher key rates, as well as self-liquidation of the so-called zombie firms, which had pulled through the Covid era only thanks to government support, Neil Shearing, chief economist at Capital Economics, told the Financial Times.
Massive government support schemes for companies and households during the pandemic have been largely withdrawn now, while central banks have been repeatedly hiking the interest rates in an attempt to tame spiraling inflation.
According to the expert, the trend is expected to continue as many businesses will have to refinance debt at higher rates in the coming months, even if central banks’ rate rises are forecast to have peaked.
U.S. Corporate Failures Set To Register 13-year High
An earlier report said:
Corporate bankruptcies in the United States could reach the highest level since 2010 due to a sharp rise in borrowing costs and economic uncertainty, Guggenheim Investments has said this week, according to MarketWatch.
The report indicated that more than 450 corporations had already filed for bankruptcy protection this year through the end of August, exceeding annual totals for the past two years.
Guggenheim analysts said that a reacceleration of the U.S. economy looks unlikely in the near future, due to the lack of supporting factors.
“The fading of these tailwinds will be a gradual process, but the peak of their support to the economy is now behind us. With less support from disinflation, fiscal policy, and the labor market, the economy should slow by the end of the year, and we think a recession is likely by early 2024,” the analysts warned.
Borrowing costs have surged since the Federal Reserve began to hike its policy rate to its current range of between 5.25% and 5.5%. On Wednesday, the regulator kept the benchmark rate unchanged at a 22-year high but signaled it could hike rates again in its fight to bring down inflation.
U.S. National Debt Jumps $2.6 Trillion In Six Months
Another media report said:
U.S. national debt has continued to mount, jumping by $2.6 trillion in the six months through December to reach $33.8 trillion, according to the Treasury Department.
The Treasury indicated that factors such as tax cuts, stimulus programs, increased government spending, and decreased tax revenues have been driving up debt.
“The national debt just exceeded $100,000 per citizen,” Republican Congressman John James said last week. “This should send a message to the White House that this reckless federal spending is at a breaking point.”
The latest fiscal data showed that as of November 2023, it cost $169 billion for the U.S. to maintain the debt, which equates to 16% of total federal spending.
Interest payments on the national debt are estimated to have surged above $1 trillion on an annualized basis as of the end of October, according to Bloomberg calculations based on U.S. Treasury data.
The U.S. exceeded its debt ceiling, which was legally set at $31.4 trillion, in January 2023. After months of warnings of a potentially disastrous default from the Treasury, U.S. President Joe Biden signed a bipartisan debt bill in June that allowed the limit to be lifted until January 2025. This effectively permitted the government to continue unlimited borrowing through next year. Debt spiked to $32 trillion less than two weeks after the bill was approved, and has been piling up ever since.
The situation has caused major international credit ratings agencies Fitch and Moody’s to cut their outlooks for the U.S. this year.
U.S. Debt To Top $50 Trillion
Citing data from the U.S. Congressional Budget Office the Bank of America (BoA) said in a note: The U.S. national debt could surge by $20 trillion over the next decade,.
According to the forecast, the current outstanding public debt amounts to roughly $33.6 trillion, but at the pace it is growing and due to “fiscal excess in the 2020s,” it is likely to grow by $5.2 billion daily for the next 10 years, which would put it at around $54 trillion by 2033.
According to BoA, one of the factors leading to a further surge in debt is the sharp increase in the federal deficit, which jumped by $320 billion to $1.7 trillion this year, forcing the Treasury Department to sell trillions of dollars worth of fresh bonds. The rise in annual interest payments caused by soaring bond yields is also weighing on the federal budget and widening deficits, the bank noted.
“U.S. public debt is… more than the combined GDPs of China, Japan, Germany, and India,” Bank of America investment strategist Michael Hartnett noted in the forecast. He warned, however, that Washington was unlikely to stop taking loans even if the federal deficit is contained, because borrowing is seen as a means to fuel economic growth and help drive the circulation of money.
“Likely central banks may simply bail out governments in coming years via quantitative easing and the introduction of yield curve control,” Hartnett added.
The U.S. exceeded its debt ceiling, which was legally set at $31.4 trillion, in January 2023. After months of warnings of an imminent and economically disastrous default from the U.S. Treasury, President Joe Biden in June signed a bipartisan debt bill that allowed the limit to be lifted until January 2025. This effectively allowed the government to keep borrowing without limits through next year. Debt spiked to $32 trillion less than two weeks after the bill was approved, and has been piling up ever since.
Experts Worried About U.S., UK And Italian Economies
An earlier Reuters report said:
The uncontrolled accumulation of debt by Western countries, along with social spending and rising climate-change costs, are increasing the risk of a new global financial crisis in developed economies.
Global debt surged by $10 trillion to a record $307 trillion in the first half of the year, with wealthy countries accounting for more than 80% of that increase, the outlet said, citing the Institute of International Finance. State borrowing is near or higher than 100% of output in Britain, the U.S. and Italy.
The U.S., which avoided a default after reaching its debt limit this year, as well as Italy and the UK are now of primary concern, according to more than 20 prominent economists, investors and former policymakers polled by Reuters.
The U.S. national debt surged by more than $500 billion in just 20 days to reach $33.5 trillion, according to data provided by the Treasury Department last week.
“You can take many, many countries today, and you will see that we are not far away from a public finances crisis,” said Peter Praet, former chief economist at the European Central Bank.
Adding to the pressure, interest payments on debts are surging, lifted by higher rates.
The current “fragile” economic environment with rising borrowing costs and dwindling central bank support is putting developed countries on the brink of a market rout, economists suggest.
“If you have an accident, or a combination of events, then you go into an adverse, non-linear, dynamic sort of process. That is something which is a real possibility,” Praet warned.
Government borrowing in Italy exceeded $3 trillion in July, making it the most indebted country in the Eurozone after Greece, and one of the most highly indebted nations in the world. Its debt risk premium surged in October as Rome cut growth and increased budget deficit forecasts.
Longer term, “government debt trajectories pose the biggest threat to macroeconomic and financial stability,” said Claudio Borio, head of the Bank for International Settlements’ monetary and economic department.
Investors are worried about “uncomfortable” debt levels and claim that a lack of credibility towards governments’ spending strategies could trigger market turmoil, while the ongoing conflicts in Ukraine and the Middle East could further exacerbate challenges already facing the global economy.
