The Impact of Increased Corporate Debt in the US

Companies across the United States have taken on increased levels of debt to survive the economic turmoil caused by the pandemic. This has leveraged threatening future profits with expensive debt servicing.

This effect is reduced by the high market price of bonds due to widespread speculation of a strong post-pandemic recovery. This means that fewer bonds were sold by a company for the same money raised when compared to previous years.

This can seriously decrease the risk tolerances of corporations in the US going forward. If companies have a higher level of debt, they will fall into bankruptcy with fewer losses. Therefore, company management will have a smaller appetite for risk as they have more precarious finances. Moreover, bankruptcy is more costly for the shareholders if the level of debt is higher. This can slow down economic progress as new initiatives will not be taken as frequently. This is the most serious effect as it threatens the future development of key industries such as the airline, and the hospitality industries.

Bankrupcies are already high because of decreased revenue. The increase in corporate debt will cause bankruptcies to persist in the future. This is because companies will face higher debt repayments and thus have a higher minimum revenue for profitability. The effects of this are widespread, notably increased unemployment and a decrease in economic growth.