According to an article published by CNN Business, the increasing levels of corporate debt could make it much harder for the U.S. economy to recover from the hit it is taking from the coronavirus. Before the spread of the virus corporate debt was already reaching a historically high level. Now, the amount of corporate debt is almost twice the amount that it was at this time last year. So far, investment-grade corporate bonds have reached $425 billion, but are continuing to rise. In order to combat the effects of this, companies may be forced to scale back their planned investments, defer capital spending projects, and even delay bringing back the employees that have been temporarily laid off. Debt will also lead firms to run into problems not only with their employees, but with their shareholders and lenders as well. While debt is a major problem for struggling companies, the article also stated that healthy companies are also contributing to the rise in corporate debt. For example, Netflix, which is currently thriving, has added $1 billion in order to invest in more movies and shows.
Why do you think a healthy company like Netflix would add to the already high level of corporate debt?
https://www.cnn.com/2020/04/25/economy/corporate-debt/index.html
2 comments:
This whole situation has created a sort of butterfly effect that will continue to grow until we can fully pull out of it. Companies like Netflix are not as effected as many other companies due to the fact that they are probably gaining from people being stuck inside. These large companies are going to look out for themselves at the end of the day, so it's no surprise that they have invested during this time.
I agree with Cody. We have seen this virus affect every part of the economy and it will continue to do so. And truly, it would be wise for companies to take care of themselves at this uncertain time, especially if there businesses that rely on in person interactions.
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