[OPE-L:6569] Re: NYTimes.com Article: Scandal's Ripple Effect: Earnings Under Threat

From: Paul Cockshott (paul@cockshott.com)
Date: Wed Feb 13 2002 - 04:28:54 EST

> Andrew Smithers, who runs Smithers & Company, an economic
> consulting firm in London, offered one way to judge the
> size of off-balance-sheet debts: look at total debt in the
> financial sector, which has been rising faster in recent
> years than that of businesses and households. As recently
> as 1996, financial debt amounted to 32 percent of total
> debt in the private sector. Now it stands at 36 percent.
> Some financial debt is household obligations, like
> automobile leases, Mr. Smithers said. But he thinks most of
> it represents off-balance- sheet debts of corporations.
> "U.S. companies are already highly leveraged," he said. "It
> is unlikely that they could take on balance sheet much of
> their off-balance-sheet debt without many companies being
> in breach of their debt covenants." If, for example, just
> half of all financial debt were moved onto corporate
> balance sheets, the leverage would jump to 163 percent of
> companies' net worth, based on replacement cost of assets,
> Mr. Smithers said.

If the personal, the financial and the corporate sector are
all net debtors and increasingly so, who holds the corresponding
credit balances?

Is it:

1. The state sector due to a budget surplus?

2. The overseas sector due to a trade deficit?

Paul Cockshott, University of Glasgow, Glasgow, Scotland
0141 330 3125  mobile:07946 476966

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