The FT notes this morning that:
Global debt markets are on the cusp of an unwelcome development with the number of companies defaulting on their obligations set to reach the century mark, driven largely by struggling US shale gas providers.
Currently, 99 global companies have defaulted since the year began, the second greatest tally in more than a decade and only exceeded by the financial crisis which saw 222 defaults in 2009, according to Standard & Poor's. US companies account for 62 of this year's defaults.
Three things. First, as US QE dries up refinancing debt is becoming harder for a wide range of companies, in the US and way beyond, especially in the emerging markets. A debt crisis is developing, and these always spell trouble.
Second, it is now obvious that shale is not a viable energy source: a mountain of money has been thrown at it and much will not come back according to experts I speak to.
Third, put these facts together and downturn is likely. Misplaced hope and high bad debts have never in human history been good news.
Oh, and the answer is? A green new deal, of course.
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This outcome (& more) was predicted last year and much of the focus of that interest was OPEC and Saudi Arabia. More particularly, some will recall the accusation that they had deliberately upped their supply levels to drive down the world price and force the highly-leveraged US shale oil producers out of business.
Apparently some of those producers cannot remain viable if the price of oil falls below a certain level. And then there is all the oil-related derivatives. Forgive my use of The Telegraph as a link in this case but for those who are unfamiliar, the 2 articles below cover the matter concisely and Ambrose Evans-Pritchard has credibility in his own right.
I guess that this is all a bit different to the housing-bubble which is a classic Ponzi arrangement: everything collapses as soon as the price(inevitably) peaks. This is more like corporate sub-prime where those firms were never viable in the absence (or ultimately, the presence)of stupidly cheap, QE related debt.
From his grave I imagine that Minsky will be reminding us that a high level of debt-financing always ends badly. From an environmental perspective I am pleased to see that the frackers are at the centre of the crisis. To hell with them and their bankers.
I forgot the links:
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/10957292/Fossil-industry-is-the-subprime-danger-of-this-cycle.html
http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/11231383/Oil-price-slump-to-trigger-new-US-debt-default-crisis-as-Opec-waits.html
A double whammy for Osborne & Cameron?
… and where now for UK energy policy if the renewed dash for gas is unviable?