Bitcoins spawns hit staggering levels early this year creating the infamous Bitcoin Spawn crisis of 2019. However, most of the altcoins are still struggling to gain trust from the public. This only affects the coins, whose development and marketing debt rise increasingly. In the financial sector, corporations are facing the same debt crisis. Unlike Bitcoin spawn crisis, the corporate debt crisis will hit the global economy the hardest.
The near-bankrupt corporate companies are now forced to seek new loans to settle their debts. This involves trickery buyback of stocks and later selling them for profit.
As the stock prices start escalating, due to the company’s buybacks, other small buyers join the party. The result is an upward spike on the stock’s prices. When the prices hit a threshold limit, the company sells its bulk stock and fetch the profit from it. This profit is then used to settle the debt.
Traditionally, corporate stock buybacks were a sign of stocks growth and an absolute buy signal. However, today, it is hard for speculative traders to decipher the real intention behind the start.
Unfortunately, this is history repeating itself. In 2008 Mortgage Crisis, the CRA (Credit Rating Agencies), awarded higher ratings to indebted blue-chip corporations to keep them in business. These corporations in return, keep commercial banks in business, hence a win-win situation for the unholy trio.
Well, the bad news is that it is happening again and corporate buybacks are just but the tip of the iceberg. Experts claim that this situation might overlap into 2020 and 2021 financial years.
That’s not all; the State Pension Programs have joined the party as well. Why? Unlike corporations, their challenge is not debt. They are facing severe funding challenges.
How are they getting dragged into this mess? Well, pension funds have invested in investments funds to yield interest with 7.5% being the target. For this target to be achieved, the investment funds are further invested in corporate bonds. It is a well-designed maze.
Let me break it down for you.
Each financial year, the corporations record higher debt rates. Soon, the debt level will reach the breaking point, and they won’t be able to issue more debt. Currently, the corporate sector debt to GDP ratio is an overwhelming 75%.
Alright, in case the corporate sector reaches the said debt levels, investments funds will not be increased by the dying corporate bond supply chain. Pension programs will then opt to sell the remaining bonds than entering the volatile securities market.
With Pensioners investment funds bailing from the crumbling house, the pension funds will record less than expected profits (less than 7.5%). In simpler terms, they will get fewer funds than had been promised.
The corporate debt is of greater concern than the household and sovereign sectors. The United States and the United Kingdom are the most affected economies.
According to Bank for International Settlements CEO, Augustin Carstens, the following is the predicted sequence of events
- BBB will lose its purpose
- Debt Markets will crumble
- Pension will sell at a loss
- Investors will divert assets
- Equity or Debts will lack market
- Corporations will stop functioning
- EU’s banking management will fail
- The financial system will freeze
Source: Crypto New Media