The FT has an article this morning with the subheading:
Companies from Brazil to China are finding it harder to repay loans and raise fresh cash, hampering growth
Why is that?
The Fed has called an end to ultra-loose money, pushing companies into a credit crunch and forcing them to postpone or cancel investments.
What't the consequence?
The result is a world economy dicing with deflation and recession.
And the scale of the problem?
Some estimate that $7tn of QE has flowed to emerging markets since the Fed began buying bonds
Any chance of a happy ending?
No: the party is over.
That's a view I agree with. Conventional QE is not working (the EU please note) and unless a lot of debt is going to be turned into equity, soon these debts are going to drag these companies down. But nothing in accounting standards encourages lenders to do that: the banks are encouraged to hand onto debts still, zombie like (although this will be changing).
I'm not sure why but this came to mind as a result:
Sometime we are going to have to face the morning after.
And we won't get there without People's Quantitative Easing, which is a very different beast indeed, largely because it works like equity.