Redrick Terry:
It is now time for 4 Your Money. We’re joined as always by David Nelson, CEO of NelsonCorp Wealth Management. David, welcome back.
David Nelson:
Thank you, Redrick. Appreciate it.
Redrick Terry:
Absolutely. So in response to the pandemic this year, the government responded by trying to ensure that companies are able to access the capital that they need. So, could you share your thoughts on how you think that’s played out so far?
David Nelson:
Well, clearly, it was a shock as far as to the funding markets. Debt wasn’t being issued. Loans weren’t being made as far as by banks. And so the Fed came in, as we’ve discussed previously, as far as with buckets of money to try to get things moving. It’s a great opportunity as far as for many corporations to capitalize on issuing some new bonds at very low rates, and the demand was there, so this actually worked out for their benefit. I brought along chart one here to just kind of give people a visual as far as what it looks like, and the red line that you’re looking at is showing the total corporate debt that was issued as far as in 2019. Blue is 2020 so far. What you see here is we’re on a pace of an 80% increase as far as in corporate debt being issued. It’s $1.5 trillion. So, just a massive number.
Redrick Terry:
Quite a big increase, definitely. But we know that it’s not just corporations that have increased borrowing. So what does the public debt landscape look like?
David Nelson:
Clearly, what we’ve seen as far as the federal reserve, we’ve talked about it, the treasury, as far as issuing bonds, we brought chart number two along to show people as far as what the federal debt compared to the GDP, which is the gross domestic product. In other words, the economy. And what we see is in the sixties here, it starts in the sixties, that was running at about a 30% debt to the GDP. The eighties, we’re now at 60%. 2008, we’re now at 100%. And as we speak, we’re over 110%. This is higher than WW2, World War II, as far as all the debt that was issued as far as after that. Stunning numbers that we’re seeing.
Redrick Terry:
Absolutely. So what are some of the likely impacts of these dynamics moving forward?
David Nelson:
Well, the biggest thing clearly is going to be lower growth. Higher debt equates to lower growth. That’s probably number one. Number two is with the saving grace, if there is one in this crisis that we found herself in, is that we have interest rates at extremely low levels. And that’s helping us today. As long as rates don’t go up, we should be okay, hopefully, if we get this economy growing again.
Redrick Terry:
David Nelson, NelsonCorp Wealth Management. As always, it’s great to have you here. Thanks for being with us.
David Nelson:
Thanks, Redrick.
Redrick Terry:
And if you missed any part of our discussion, we’ll make it available to you at OurQuadCities.com.