Top CitiBank Economist Warns Corporate Debt is Exploding

Willem Buiter

Citi's global chief economist, Dr Willem Buiter, speaking on Friday at the Asian Monetary Policy Forum  at the Shangri-La Hotel  warned of an "explosion in leverage".

"Look at the US. No cross-sectoral learning has taken place," he said. "Yes, leverage is more or less under control in the banking sector because it was hit hard by regulations... but we see corporate debt, especially at the junk end in dangerous territory, with risk wholly underpriced."

Commercial real estate lending has exploded in a way that is not compatible with the future path of occupancy rates, he said.

"Even households,
while not leveraging up through mortgages again... are now leveraging up through credit cards, subprime car loans, student loans and the rapid expansion of credit through shadow banks, which are not on anybody's radar."

Buiter is correct on these points but he fails to state that the debt explosion is the direct result of Federal Reserve manipulation of interest rates.

This will not end well, but as I point out in the EPJ Daily Alert, there are no indications a 2008-type financial crash is in the cards for the immediate future,

The Fed creates a boom-bust cycle, At present, we remain in the boom phase, When the bust comes it will be obvious to everyone, we are not now in the bust phase,

-RW