"... [T]here are enough eerie similarities between America today and Japan in 1989-90 to be worrying. The biggest is excessive debt. Too much debt was always at the heart of Japan’s weakness. So it is alarming that America’s boom has also been fuelled by massive borrowing by companies and households. Our survey of corporate finance in this week’s issue explores how American firms’ borrowing binge has left lenders exposed to some nasty risks. And, as if corporate debt is not alarming enough, consumer borrowing has been even more rampant. By borrowing against paper gains in share values, households have been able to shop until they dropped, not bothering to save.
"Optimists retort that private-sector balance sheets look healthy, because the increase in debt has been more than matched by increased assets. However, balance sheets also looked remarkably healthy in Japan in the late 1980s — until asset prices tumbled. On most historical measures, American share prices remain heftily overvalued. A lot of consumer and corporate debt has been incurred on the assumption of everlasting growth and rising share prices."
Full text: http://www.economist.com/displayStory.cfm?Story_ID=488864
Carl
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