The US corporate default rate, according to Standard & Poor’s Global Fixed Income Research, soared from 2.8% in January to 3.3% in February, a big jump for just one month, and the highest rate since December 2010, when it was recovering from the Financial Crisis, with QE and ZIRP running at full bore, and with banks and big corporations getting bailed out by the Fed and the Treasury.And it’s higher than it had been during the early phase of the Financial Crisis in September 2008, when Lehman Brothers filed for bankruptcy, when all heck was breaking lose, when stocks and bonds were plunging, and when the default rate was “only” 2.96%.
We haven’t seen numbers like these since the last global recession. I recently wrote about how global trade is imploding all over the planet, and the same thing is true when it comes to manufacturing. We just learned that manufacturing in China has now been contracting for seven months in a row, and as you will see below, U.S. manufacturing is facing “its toughest period since the global financial crisis”.
Yes, global stocks have bounced back a bit after experiencing dramatic declines during January and the first part of February, and this is something that investors are very happy about. But that does not mean that the crisis is over. All bear markets have their ups and downs, and this one will not be any different.
Meanwhile, the cold, hard economic numbers that keep coming in are absolutely screaming that a new global recession is here.
I begin with what I regard as the fundamental fact of modern economic life: the present value of the unfunded liabilities of the United States government.
The economist who has been most vocal about this is Prof. Lawrence Kotlikoff of Boston University. He releases an estimate every year. His estimate is this: somewhere in the range of $210 trillion.
Understand, this is not the future value of the unfunded liabilities of the federal government. This is the present market value of those unfunded liabilities. This is what the federal government should put aside today to invest in profitable investments that will enable these unfunded liabilities to be funded.
Comparable unfunded liabilities face every other Western government, including Japan. This is an international problem. It is a universal problem.
The response of all governments is the same: they ignore the problem.