Fed backstop masks rising risks in America’s corporate debt market

Financial Times/Joe Rennison

“[C]ompanies’ ability to pay for the increase in debt has declined, with the number of so-called zombie companies — whose interest payments have been higher than profits for three years running – rising close to the historic peak, according to data from Leuthold Group.”

USAGOLD note:  The dangers of moral hazard are covered in detail in this FT article without ever referring to it as such. The question remains: What happens to these companies when the Fed pulls the rug? An even more complicated question might be What happens if it doesn’t?

Repost from 12-28-2020

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