The first chart below shows that the corporate debt-to-equity ratio is low.
The second chart shows that corporate debt is high as a share of GDP.
In other words, corporate debt levels are low relative to equity prices. But corporate debt levels are high as a share of GDP.
A different way of looking at this is that a decade of low interest rates and QE boosted both debt levels and equity valuations. But easy monetary policy did not boost GDP by nearly as much.
One important conclusion is that there is more financial engineering, i.e. debt and equity outstanding, in the economy than ever before. And this increase in debt and equity outstanding has not yielded a corresponding boost to GDP.
The bears see high levels of debt and equity outstanding as a future risk to financial stability, in particular in a situation where inflation is high and interest rates are rising. The bulls argue that a more developed financial system is positive for growth and risk management in the economy for households, firms, and investors.
Source: FRB, Haver Analytics, Apollo Chief EconomistSource: FRB, Haver Analytics, Apollo Chief Economist
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