Individuals And Corporations On Borrowing Spree
July 5, 2000
Individual and corporate debt have surged in the U.S. recently to unprecedented levels.
- A record $4.5 trillion in debt has been accumulated by U.S. nonfinancial corporations -- up 67 percent in the past five years.
- Household borrowing has risen almost 60 percent during that period -- to a total of $6.5 trillion.
- While borrowing and spending may be good for the economy, bankers are concerned that companies and individuals who can least afford to do so are piling on debt -- setting up a critical situation if the economy goes sour.
- More than $160 billion of "subprime" mortgage loans to lower-credit borrowers were made last year, representing 11 percent of all mortgages -- up from $40 billion, or just 4 percent of the total, in 1993.
Over 40 percent of new home mortgages are extended to home buyers who put down less than 10 percent of the purchase price. The firm SMR Research estimates that at least one-quarter of all new mortgages go people who are "basically broke" -- and it warns that the actual figure could be much higher.
The value of corporate "junk bonds" outstanding has soared to $529 billion from just $173 billion a decade ago. Some 5.4 percent of U.S. companies with junk bonds defaulted on interest payments in the past 12 months -- up from over 1 percent in 1997.
Source: Gregory Zuckerman, "Debtor Nation: Borrowing Levels Reach a Record, Sparking Debate," Wall Street Journal, July 5, 2000.
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