Dallas Fed: Ballooning Debt Could Suddenly Become a Big Issue for Economy

  • Dallas Federal Reserve President Robert Kaplan is worried about ballooning levels of corporate debt and what would happen if there was a sudden deterioration in credit quality.
  • “My concern is if you have a downturn where we grow more slowly it means that this amount of debt could be an amplifier,” he said.
  • Investors have pointed to historically low interest rates both as the reason for the high levels of debt and justification for not panicking yet.

Dallas Federal Reserve President Robert Kaplan is worried about surging levels of corporate debt and laid out a scenario where it could suddenly become a big problem for the economy.

“The thing I am worried about is if you get two or three BBB credit downgrades to BB or B, that could lead to a rapid widening in credit spreads, which could then lead to a rapid tightening in financial conditions,” Kaplan said in a Tuesday interview with CNBC’s Steve Liesman.

“We’re got a record level of corporate and to be specific BBB debt has tripled over the last 10 years,” he said on “Squawk Box.” “Leveraged loans as well as BB and B debt have grown dramatically.”

Total corporate debt has swelled from about $5 trillion in 2007 as the Great Recession was just beginning to $9.5 trillion halfway through 2019, quietly surging 90%, according to Securities Industry and Financial Markets Association data.

www.cnbc.com/2019/11/26/dallas-feds-kaplan-says-firm-debt-could-be-next-financial-calamity.html