Low interest rates allowed companies to borrow money at no cost. But instead of increasing productivity, the financing was used to drive up the cost of shares, setting the stage for imminent collapse, Prof. Richard Wolff told RT.
US private corporate debt stands at a whopping $9 trillion, and that spells major trouble for the overheated economy as soon as recession sets in, Professor Wolff, economist and co-founder of ‘Democracy at Work’, told RT America’s Rick Sanchez.
Wolff said that unprecedentedly low interest rates are a scourge, not a blessing, for the US economy, as they only create the appearance of recovery, rather than contributing to growth in productivity.
“It’s a very dangerous place we’ve come to and that’s why all this talk of ‘recovery, recovery’ hides the fact that the things we did to look like we were recovering created the greater vulnerability than what we had in the first place.”
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He said that many companies prefer to use the “free money” to load up on debt and buy their own shares or buy each other’s since “many of the corporate executives doing that have pay packages linked to the price of the shares in the market.”
This “manipulation” has “buried us in a corporate debt problem,” and “we’ve never had this before at this scale,” Wolff argued.
“And if an economic downturn comes, as most economists expect over the next 12 to 24 months, nobody can guess what will happen when the companies that go down can’t pay back the debts they’ve taken out.”
Wolff said that the looming economic problems will have fairly similar causes to the 2008 financial crisis, the worst since the Great Depression.
“And let’s not forget, what led to the crisis of 2008 was the inability of people who couldn’t afford it to pay back the mortgages they had taken out, and then the system fell apart based on that failure of the debt to be repayable.”
Watch Wolffs’ full interview below:
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