Are we heading into a debt crisis
This isn’t a well thought out post containing a bunch of research, but I do want to create a discussion around some trends that have been occurring since post 2008
2010-2019: interest rate environment at basically zero as well as continued quantitative easing. We rode one of the longest bull markets in history and gave rise to a ton of new asset classes (PE, Private Credit) as well as raised asset prices in large speculative markets such as tech. Lots of valuations on growth in an environment where debt was very cheap and risk taking/speculation was encouraged and often resulted in great returns (there are counter examples such as crypto and NFTs). Corporate and consumer debt piled and outpaced GDP
2020-2021: rates went to zero again with support of quantitative easing and stimulus checks. Economy was flushed with cash while supply chain issues emerged and inflation spiked. Fed raised rates aggressively and the market declined significantly. Tech valuations in 2021 plummeted (look at some IPOs in early 2021 and see how they’ve resulted today. Valuations on growth couldn’t be sustained due to a market cutting back on expenses and debt becoming more expensive).
Current day: Fed announced they plan to halt interest rate spikes and will cut maybe 3 times in 2024. At the same time, massive layoffs in tech as well as finance. Dry powder accumulates, M&A is down, IPOs are down. There is lots of speculation in AI but some promising results. Regardless, do we think the fed will sustain a non zero interest rate environment moving forward? Lots of corporate debt is coming due and will be hard to restructure for cheaper now that the debt is more expensive than when taken on in a zero interest rate environment. Do we just keep over-leveraging ourselves until we devalue the dollar to restructure the debt? Are we in position to lose global reserve status?
Disclaimer: I’m a college student who could be totally wrong about some fundamental things I observed, so please brutally rail me if I’m totally wrong
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