Covid-19 and the credit cycle: 2020 revisited and 2021 outlook

Edward I Altman

Journal of Credit Risk

Abstract: This study continues the author’s examination and forecasts as to the impact of Covid-19 on the US credit cycle after one and a half years since the pandemic first began. We explore the enormous build-up of global debt even before the pandemic commenced and the subsequent record debt expansion through mid-2021. New debt peaks, especially for nonfinancial corporate debt, are analyzed as to their potential impact on future default rates and the implications for the US credit markets once again starting a new benign cycle in a continuing low interest rate environment. We ask whether the spectacular success of the US central bank and its monetary policy and secondary-market purchases has also promoted potentially destructive unforeseen consequences for debt rated BBB and below. Large- and small-firm defaults and bankruptcies in both 2020 and 2021 are compared, and our expectations about those firms’ solvency status once the government and central bank supports diminish and are eliminated are examined. Finally, we introduce the concept of global zombie firms and suggest that this growing phenomenon be analyzed more robustly and critically with new criteria and empirical analysis.

References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.risk.net/journal-of-credit-risk/790932 ... ted-and-2021-outlook (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rsk:journ1:7909321

Access Statistics for this article

More articles in Journal of Credit Risk from Journal of Credit Risk
Bibliographic data for series maintained by Thomas Paine ().