Credit crunch gets a little mainstream press ink. Maybe we'll be hearing more from others in the near future.
usnews.com
One of the most powerful recessionary forces remains below the radar
screen of public awareness. It is that we are in the midst of a stealth
credit crunch. Numerous bank consolidations have restricted bank
financing and bank syndication, and the comptroller of the currency is
intensifying pressure on loan quality. Many corporations borrowed too
much during the boom and are going to have trouble paying back debts in
slow times. Debt-to-equity ratios of nonfinancial corporations have risen
from 70 percent to 80 percent since 1997. Overall, nonfinancial debt
nearly doubled to $4.5 trillion, according to recent Moody studies, with
information technology companies, especially telecoms, leading the way.
Corporate America has been downgraded by the big credit agencies at a
faster pace than at any time since the early '90s, so banks facing
increasing loan losses have axed their lending. Only the very best
companies can get any kind of credit, and many of them have become
highly leveraged because they bought back large amounts of their shares,
reducing their equity. With weakening demand, corporate profit margins
are shrinking, reducing the cash flow to finance more capital expansion.
The collapse of global equity markets has sharply curtailed that source of
new money, as has the thinning of the massive capital inflows from foreign
investors attracted by our vibrant financial markets and relatively higher
economic growth.
As for the California power problem, consumers will end up eating a larger part of it than it now appears, and plants WILL be sited and built. What usually happens here is you get run over if you don't squawk loudly in the beginning, so extreme positions are staked out, which are later moderated in compromises. Especially when the alternative is a rolling blackout. Messy and not as efficient as a corporate-bought legislature, but more participatory.
What won't happen, is that the utilities won't get away without sharing some of the burden. The increase in non-regulated natural gas prices, which is about to hit in this month's bills, should spur increased conservation as well. |
