Corporations, already big fans of debt, have become even more leveraged since the pandemic began, borrowing so much that it could wind up slowing down the economy, according to Bloomberg.

The entire corporate sector has added $1.6 trillion in debt over just a few months, and, what's more, this debt has become far more risky: Bloomberg said that the average junk-rated company had debt levels relative to earnings that were so high in the middle of the year, according to a new analysis by Bloomberg Intelligence, that they almost would have tripped do-not-touch alerts from banking regulators had such rules still been in place now.

Such high levels of debt were not as big a concern pre-pandemic, as financing had became extremely cheap and easy to access, and so even if a company was so leveraged as to be no longer even able to operate without constant borrowing, there were always plenty of options for more credit. Since the pandemic began, however, lending has become tighter, and banks have become tougher in their terms.

As a result, said Bloomberg, corporations will find it challenging to service their debt while, at the same time, facing diminishing revenues, as COVID-19 continues to roam through the land. Resources shifted to paying down debt will mean less money for capital investment and for hiring, which will serve to slow the economy down as it tries to recover.

Bloomberg noted that as bad as this might be, it was by design, as the central bank's response to the COVID-19 crisis was to slash interest rates, already at record lows, to near-zero while, at the same time, pledging to buy up huge amounts of corporate debt no one else wanted to buy. This was done out of concern, at least partially, that businesses wouldn't be able to pay their debts and wind up defaulting. In this respect, though, it would seem that the Fed has pushed the problem down the road, hoping that, in a few years' time, the corporate sector will be capable of tackling it in a way it cannot seem to do now. Bloomberg used the analogy of a hangover to describe the corporate debt binge in general, but one might argue it's especially apt to the Fed response, specifically in the old "hair of the dog" cure—that is, solving a problem caused by alcohol with even more alcohol, which itself will produce a hangover of its own in time.