Corporate Leverage Gets Corzined …

A friend pointed us to a post by Macroman that discusses revisions to the flow of funds data published by the Fed that have apparently already been made a few months ago. Nothing about them seems remarkable, until one gets to corporate non-financial debt. Apparently, all that debt that has been taken on by companies in recent years has suddenly disappeared, as if by magic.

 

e-magician

Photo credit: ThinkStock

 

We admittedly don’t know what motivated the revisions and why the data now show such a huge discrepancy to what they showed before, but the change is truly remarkable. Macroman shows a “before” and “after” chart combination of US non-financial corporate debt as a percentage of GDP that is really quite stunning. It looks like this:

 

nf corp liabilitiesThe new and improved corporate debt picture, following some “benchmark revision” data fiddling, compared to the previous, slightly more concerning debt picture – by Macroman, click to enlarge.

 

The Greenspan and Bernanke credit bubbles apparently never happened; it was all just a bad dream. From eyeballing the difference between the revised and the original data, some 14.5% of GDP, or $2.568 trillion in corporate debt have evaporated into thin air. They existed one day, and abracadabra, ceased to exist the next. Pure magic.

As Macroman comments:

 

“[…] it’s hard to know what to make of this, as the magnitude of the revision renders the data literally unbelievable. As the saying goes, there’s lies, damned lies, and statistics…

 

(emphasis added)

Indeed, it is really extremely difficult to believe. How can almost $2.6 trillion in debt just vanish? It seems they been Corzined. Unfortunately, there is no good explanation to this we know of at this time. If anyone has one that sounds like it might make sense, we’d really love to hear it.

As our friend remarked, in light of this sudden debt evaporation one can of course immediately stop worrying about all that junk debt out there (of which more than $2 trillion have reportedly been issued – or maybe not? – over the past several years). Buy as much junk as your heart desires, there is now a shortage of the stuff! We’re positively debt-starved!

 

Conclusion:

We’re actually not really sure yet what the proper conclusion is, but this is certainly quite astonishing, to say the least. The video excerpt below may by now be suffering a bit from over-exposure, but it seems rather appropriate to the situation.

 

Meet the culprit

 

Addendum:

We already noticed a few weeks ago that more than $3 trillion were suddenly missing from the Fed’s “total credit market debt owed” chart, which was just a tiny bit below the $60 trillion level previously (we even proposed to get those 60 trillion party hats out, which will now have to be postponed by a few months…). Evidently also a victim of this harmless little data revision.

 

 

 

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3 Responses to “The Magical Debt Disappearance”

  • bc:

    If this is nominal value rather than notional value then it makes sense as interest rates did rise a little which would cause nominal value of such debt to plummet.

  • No6:

    Special relativity! simple. The economy has reached escape velocity!

  • rodney:

    Things that should outrage us somehow don’t seem to provoke a reaction anymore. Sign of the times, an empire in decline … the moral fabric of the country is rotten.

    15% of GDP of accounting fraud is truly banana republic territory.

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