US companies are posting record profits, as the end of 2011 and beginning of 2012 had the highest operating earnings for S&P 500 companies since 1981. That being said, 3rd Quarter profits and revenues fell for the first time since 2009.
The deleveraging process has only just begun:
- Corporations typically lead the deleveraging process, which is trending to last through mid-2013 (McKinsey).
- American Airlines had $4 Billion in the bank when it declared bankruptcy in December, 2011. It did so–after competing airlines followed this model–to reduce debt and break union contracts.
- Private-sector debt has also fallen, with overextended households reducing their outstanding debt by $584 Billion (4%) since the end of 2008.
The S&P 500 is stockpiling cash: approximately $900 billion, which is 40% more than they had before the 2008 recession. This “dead money” is a result of global companies going frugal (minimal investments in jobs, property, equipment, etc.), with the anticipation that the global financial crisis is not over. After supporting economy recovery efforts, it is anticipated that governments will hopefully begin to reduce their debts and lower the ratio of debt to Gross Domestic Product (GDP). However, in the US, eighty CEO’s sent an open letter to Congress to take action on the $16 trillion national debt now, calling it “a serious threat to the economic well-being and security of the United States.”
What is your debt to asset ratio?
