For one thing, the 2008 financial crisis and recession resulted from years of deeply rooted weak spots in the economy. That’s not the case now.
Since banks freely doled out credit for mortgages, auto loans and credit cards, household debt climbed to a record 134% of gross domestic product, according to Oxford Economics and the Federal Reserve. Americans had been saving just 3.6% of their income at the end of 2007. As Americans worked down that debt, spending fell sharply.Household debt is at a historically low 96% of GDP. Households are saving about 8% of their income.
Automotive companies are particularly vulnerable to economic downturns because people can often hold off on buying new vehicles until conditions improve. U.S. auto sales plunged during the Great Recession.Corporations had $9.3 trillion in rated debt in 2019, according to S&P Global Ratings.That said, conditions for repayment are clearly deteriorating.
Though the oil-and-gas sector is expected to be hit hard by the sharp decline in oil prices, the industry is heading into this crisis in decent shape. Only 31% of oil-and-gas companies had debt rated as junk in 2019.The global financial crisis ushered in sweeping changes to how the U.S. government regulates the banking industry.
To be sure, banks’ profitability could be threatened in the near term if they are forced to tighten lending standards. A historic drop in bond yields recently could pressure banks further because it tends to hurt their profitability.
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