The decade of the 1990s brought with it the collapse of the Soviet economy, the Asian financial meltdown and the slump of the great economy of Japan. The West had the greatest corporate failure and the greatest corporate merger in history. Globally, millions lost their jobs in the 1990s.
Things have hardly improved in the 21st century. Currently, the German economy, the engine of Europe, is in recession. Unemployment tops 4 million. Britain is entering recession, the U.S. already being some months into a slump. European Union nations have taken on the high-risk enterprise of the euro, replacing all sovereign currencies of member nations with a standard means of exchange regardless of the current state of any member nation’s economy. In the U.S., the greatest corporate bankruptcy in history, that of energy investment giant Enron, is currently embarrassing the U.S. administration. Meanwhile, the largest retailer to go bankrupt, Kmart, has signalled trouble in that sector.
All of this does not paint a pretty scenario, particularly when a feature on the financial scene last year was a recordnumber of global corporate defaults.
The outlook for the current year does not look good either. “A record number of companies defaulted on their debt in 2001 around the world, and the number could be even greater in 2002, the credit rating firm Standard and Poor’s said …. Corporate defaults exceeded 200 for the first time, with 211 firms defaulting on some us$115.4 billion … of debt last year, S&P said. … The previous record was set in 2000, when 132 issuers defaulted on us$42.3 billion of debt. … S&P said the worst may not yet be over for companies defaulting on their debt” (Financial review, Jan. 15).
Notice the huge escalation in the unpaid debt involved here—well over double, and closer to three times, the record amount of debt defaulted on globally in the previous year. And we are promised that the number of defaults (and thus the amount of debt) could be even greater this year.
No financial system can sustain such an impact and survive. Something has to give. Will this year introduce the specter of depression hitting some national markets? Keep watching and reading upcoming articles in this magazine as we monitor these trends.