Zombies: the reason the economy isn't growing the way it should

T

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Barron's reports
the Bank for International Settlements — the central banks’ central banks — says there is something to worry about, and it’s the reason that economic growth, inflation and interest rates can’t get off the ground: zombies.
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No that is not a misprint. Of course, they are talking about "Corporate Zombies", not the flesh and blood kind.

The BIS found that, ever since the 1980s, falling interest rates have made it easier and easier for bad companies with lousy management and terrible products and dismal prospects to stay in business long after they should have gone the way of all flesh.

These “zombie” companies can stay alive—or whatever the correct term is for zombies—if they can just keep borrowing. Bankers call this “extend and pretend” (as in, “extend the term of the loan, and pretend it’s ever going to be repaid.”)

And when money gets cheaper, that’s great for zombies. Lower interest rates are correlated with rising numbers of zombie companies, the BIS found.

And there are a lot of zombies around. The BIS reckons no fewer than 12% of the non-financial companies on major developed stock markets could be “zombie” companies, at least by a loose definition.

This is an epidemic. In the early 1990s, the figure was about 2%.

Zombie companies are bad for the rest of the economy. Forget about being an economist: Think about the worst company you ever worked for. Think about all the waste that took place — all the money, time, effort and potentially valuable real estate wasted by idiot managers and self-serving bureaucracies and terrible technology and all the rest.

Replicate that to make up 12% of the economy. There. Now you understand why economic growth has been so sluggish for a generation. Now you know why the stock market is so hooked on the Federal Reserve.

Hey, don’t blame me. Blame the BIS.

We’d all be better off if badly run companies were put out of their misery, economists agree. But as long as interest rates are low and debt is cheap, they keep staggering around.
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You would have thought the recession and would have killed off a lot of these... and while it did kill some, most shed workers and lived off the the very low interest rates that were forced by the fed.

12% of companies being zombies is a scary idea. When they finally collapse in a future recession it's going to be multiplier just like the Dot Com days.

It also says while our rates suck, they are actually negative in Europe. Give you money to the government to hold for a year, they take 0.5% for their trouble and give back 99.5%.


Going to hard to get a strong economy again unless we can fix/kill the Zombies.

Zombies!
 
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