Will Corporate Debt Cause the Next Recession?

One thing is certain: A U.S. recession will eventually come along. The question is what will cause it and when. Among the oft-discussed culprits is corporate debt. Bloomberg Opinion columnists Nir Kaissar and Noah Smith recently met online to debate whether companies have accumulated too much debt and if that poses a risk to the economy.

Noah Smith: More people are worrying about U.S. nonfinancial corporate debt, which is at an all-time high as a share of the economy. Bloomberg News looked into a bunch of big acquisitions and found that a lot of companies are so leveraged that they would have a junk label if credit raters weren’t being lenient (sound familiar?). The Federal Reserve is starting to watch the leveraged loan market carefully as these loans proliferate. Bank of America is on “recession watch,” modeling losses from a junk-bond crash. Bloomberg Opinion’s own Danielle DiMartino Booth believes that large amounts of so-called investment grade debt isn’t actually very safe, consisting of leveraged loans, junk bonds and BBB-rated bonds. Meanwhile, credit spreads have shrunk to levels that often presage a recession. And the Fed intends to continue raising interest rates.