The total of corporate leveraged loans has hit $1.6 trillion globally, far exceeding the records set prior to the crisis of 2008. The loans ballooned after the Trump Administration reversed a stricter Obama-era policy discouraging high leverage. Now, leverage is increasing, while underlying covenant quality is decreasing. The US Federal Reserve, the Bank of England and the Reserve Bank of Australia have all sounded the alarm over the loans.
$1.6 trillion in risky 'leveraged loans' are overhanging the global economy - Business Insider
A decade after the last financial crisis and recession, the U.S. economy remains significantly smaller than it should be based on its pre-crisis growth trend. One possible reason lies in the large losses in the economy’s productive capacity following the financial crisis. The size of those losses suggests that the level of output is unlikely to revert to its pre-crisis trend level. This represents a lifetime present-value income loss of about $70,000 for every American.
Federal Reserve Bank of San Francisco | The Financial Crisis at 10: Will We Ever Recover?
Do changes in U.S. dollar interest rates have a material impact on financial conditions elsewhere in the world? The answer is a resounding yes (see the paper one of us presented at this month’s IMF Annual Research Conference). When the Federal Reserve eases, the result is a dramatic increase in financial system leverage in other countries. Not only that, but the impact is larger than that of domestic policy changes.
U.S. Monetary Policy Spillovers — Money, Banking and Financial Markets