Is There a Corporate Debt Crisis?

CONCERN about the financial stability of the U.S. corporate sector has been a staple of the business press and, to a lesser extent, of academic research for years. Henry Kaufman has been particularly consistent in warning about the dangers of excessive debt, in the household and government sectors as well as in corporations. His most recent article stresses the rapid growth of debt relative to income, as well as deteriorating credit quality. 1 Table 1 presents statistics on U.S. corporate debt growth and national income since 1969. The first two columns give the average growth rates of nominal GNP and the book value of outstanding nonfinancial corporate debt, as reported by the Flow of Funds, for the period 1969-80 and for each year in the eighties; Kaufman cites similar figures, although with different sample periods. The final four columns include, for comparison, related series from a sample of 643 COMPUSTAT firms. The table suggests that if there is any problem with the rate of debt growth, it has developed recently.2 While debt growth and income We are grateful to Gordon Bodnar and Toni Whited for able and dedicated research assistance, and to members of the Brookings Panel for helpful comments on an earlier draft. 1.