Welcome to a bad time for big debts
tome “Capital in the Twentieth Century”, by Thomas Piketty, a French economist, runs to 204,000 words—longer even than Homer’s “Odyssey”. But the book’scan be distilled to a single, three-character expression: r > g. As long as “r”, the real rate of return to capital, exceeds “g”, the real rate of economic growth—as Mr Piketty calculated it did over the course of the 20th century—then inequality will supposedly widen.
Paribas, a bank. “This is the point at which, if you’re a business, your revenues are now growing more slowly than your cost of financing.” Wage growth will lag debt growth. Governments’ interest bills will grow faster than tax receipts. A single quarter of this might be bearable. Unfortunately, economists expect the situation to last a year or more.
Many companies carry a mix of fixed and floating-rate debt, meaning they will also be somewhat insulated. But the maturities of their debts tend to be much shorter than those of mortgages. A large portion of corporate fixed-rate debt is due to roll over in 2024. Companies that are preparing to refinance are getting nervous.
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