Ills of rising corporate debt will show when liquidity dries up

PLACES as far apart as Texas and Mumbai can only gasp with relief as devastating floods subside, leaving a trail of death and destruction in their wake. But there is another engulfing tide which we can only hope will be slow to recede, for fear of what it will expose.

This is the sea of financial liquidity that central banks have created since the global financial crisis of 2008, and which conceals a mountain of corporate and other debt that even now continues to expand in size. Its dimensions will be revealed soon enough as the liquidity drains.

Financial markets will not be able to say that they were not warned. The latest of a series of danger signals was hoisted last week, when the Institute of International Finance (IIF) in Washington issued a report warning that corporate America is deeply in debt.