Data compiled by Thomson Reuters shows analysts expect a decrease of about 36 per cent in Standard & Poor's 500 corporate earnings in the second quarter from a year earlier and no improvement from the first quarter.

Many US high yield bond issuers that were levered 6 or 7 times before the recession began are now levered between 8 and 10 times as profit margins shrink, Mr Mark Kiesel, managing director and global head of Pacific Investment Management Co's (PIMCO) corporate bond portfolio management team told Reuters Television this week.

Now, companies' anxiety about shouldering too much debt in a forbidding economic landscape is itself acting as a restraint on economic growth, because many firms will hesitate to invest in expansion, analysts said.

'Reluctance to borrow will be a big restraint on recovery,' said Mr William Sullivan, chief economist at JVB Financial Group in Boca Raton, Florida.

After bingeing on cheap credit in the early 2000s, companies' newfound emphasis on austerity and living within their means may constrain economic growth for the next 10 years, some say.

'It took exceptionally easy credit conditions to spur this (debt) ratio higher,' said King. Now, 'with lenders, borrowers, and regulators all burned by the financial crisis,' he said, 'it will take a decade's worth of time and possibly many business cycles for companies to feel that they can expand debt again on a wide scale.' In the meantime, there are three ways out of the debt trap for companies.

'They can slowly work it off, they can refinance at lower rates or they can just default,' Mr King said.

As government rescues of the economy and financial markets have seemingly averted another Great Depression, rating agencies have trimmed their forecasts for the US corporate bond default rate, now seen peaking at about 12.9 per cent in the fourth quarter. That's below 1930s levels of about 15 or 16 per cent, but still hefty by post-World War Two standards.

To be sure, though companies at first will shirk from taking on as much debt as in the boom years, 'both individuals and markets have a shorter memory than I think should be the case,' said Mr Santow.

He cited surging issuance and corporate bonds' meteoric rally in the first half of the year as proof of how appetite for riskier debt can recover surprisingly fast even after a major financial crisis.

'The corporate market will return to something closer to normal at a quicker pace than most people realize,' Mr Santow said. -- REUTERS