Question

In an article in CNN Matt Egan and Jordan Valinsky called "Corporate America, not banks, could cause the next recession" goes over the problem of the rising corporate debt. How does this huge corporate debt get escalated during the current pandemic and what does the future hold? Please review the article and share with the class your thoughts. https://money.cnn.com/2018/09/23/investing/stocks-week-ahead-fed-debt/index.html

Answer 1

In the article in CNN, Matt Egan and Jordan Valinsky called "Corporate America, not banks, could cause the next recession" goes over the problem of the rising corporate debt and this huge corporate debt will definitely get escalated during the current COVID-19 pandemic.

The article given is of year 2018, but yes it holds more meaning today with the pandemic causing heavy destruction to the livelihoods and economy. The article says that many of the executives from top banks and financial institutions are concerned over the huge debts taken by the corporates and again there are zombie companies who in the good economic condition also are unable to generate enough earnings before interest and tax to pay off their interest completely. This gives us the impression that in time of pandemic, when even good companies are struggling to retain their employees and maintain their earning levels, the zombie companies and other high debt laden companies will face huge crisis to pay off the debts leading to recession. Before pandemic also there was trade tensions with China going on, affecting the economy.

So to conclude, it can be said that corporate's may be the reason who will bring out the recession this time and the pandemic may be the last trigger to cause it more devastating as the corporates will be more deep into debt because of less work and lower earnings.