I use to think the next debt crisis was going to be a sovereign debt crisis, but I think it may be much bigger and much worse - a combination sovereign, corporate, consumer debt crisis. Sovereign balance sheets have exploded in a countercyclical move to cover for reduced aggregate demand in the wake of the GFC. Now corporate balance sheets are exploding as the false veneer of higher profits and higher share prices allows companies to gorge themselves at the trough of low interest rates and an eager demand for higher yielding paper. This will come back to bite when the economy experiences its next cyclical downturn. The poor consumer, overstuffed as he is but hanging on, will simply be collateral damage as everything goes to hell in a handbasket.
The margin for error is diminishing.
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