September 09, 2009

The Economy Appears to be Recovering; but Debt will not Disappear

Causation is a simple concept that some people do not understand. If you dig a hole, there is going to be a hole; everyone comprehends that. What some do not understand is if you stop digging a hole, and instead start climbing a mountain, there is still going to be a hole. Our economy is recoverying. The stock market is rising. However, when we look at individual and business debt, the large majority of debt is still outstanding. At some point that debt will become due. Between 2012 and 2014, 85% of the $518 billion in current leveraged loans outstanding will become due (according to S&P). What will happen when that debt can't be paid back? I doubt the economy will react favorably. Some companies (such as GM) are restructing or filing for debt consolidation through bankruptcy court. Some other companies (such as Sungard and Cablevision) are trying to negotiate extended repayment terms. That sounds a lot like a home "loan modification" to me. What does this all mean? It means we are all in the same boat - individuals and large businesses alike. And it means our boat is not going anywhere fast. Individuals cannot ignore their debt problems just like the larger business cannot. Debt issues should be met by proactive debt relief strategies to help curb future debt disasters - both at home and on Wall Street.