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One thing that always got me scratching my head about Quantitative Easing, was that it made money so cheap for companies. So cheap, that to juice their ROE, it made sense to borrow money and use that money to buy back shares. Basically that money ended up just being tied up into debt that really did almost nothing of economic value. ie almost no jobs nor capital improvements came out of that money
Now with rates being so low, and basically zero, it has made servicing debt much easier. But there is a downside to that, this has allowed companies that should have gone under a chance to survive. But not so in a way that they can recover, but basically survive and pay their debts.
That also is bad for the economy, as those companies will suck up resources that should go to those that survive and thrive.
Creative destruction has been removed from the marketplace, which can be a good thing in many cases
The list inclucdes 600 companies including 'You've heard of all of them: Macy's, the four major airlines (Delta, United, American, and Southwest), Carnival, Exxon Mobil, and Marriott International, to name a few.' Some will survive like Exxon and Marriott, but others like the airlines might not.
13% of all companies are zombies btw
Europe also has it pretty bad
'Europe’s zombie firms are multiplying like never before. In Germany, one of the few European economies that has weathered the virus crisis reasonably well, an estimated 550,000 firms — roughly one-sixth of the total — could already be classified as “zombies”, according to research by the credit agency Creditreform. It’s a similar story in Switzerland.
Zombie firms are over-leveraged, high-risk companies with a business model that is not remotely self-sustaining, since they need to constantly raise fresh money from new creditors to pay off existing creditors. According to the Bank for International Settlements’ definition, they are unable to cover debt servicing costs with their EBIT (earnings before interest and taxes) over an extended period.
The number of zombie companies has been rising across Europe and the Anglosphere — due to of two main factors:
This will keep productivity down and with it wages. Japan suffered for a good decade under the fall out of the bubble. Zombie companies were allowed to stagger on for decades with low rates and semi bail outs.
It is kinda the Greeification of the world's economy. A dragged out slow recovery that never seems to go anywhere.
Should we allow creative destruction to happen and just bail out the workers? That seems a less awful idea imho
https://www.msn.com/en-us/news/othe...what-does-that-mean-for-investors/ar-BB1cBXnu
https://www.marketwatch.com/story/b...unning-rampant-in-the-stock-market-2020-11-24
Now with rates being so low, and basically zero, it has made servicing debt much easier. But there is a downside to that, this has allowed companies that should have gone under a chance to survive. But not so in a way that they can recover, but basically survive and pay their debts.
That also is bad for the economy, as those companies will suck up resources that should go to those that survive and thrive.
Creative destruction has been removed from the marketplace, which can be a good thing in many cases
The list inclucdes 600 companies including 'You've heard of all of them: Macy's, the four major airlines (Delta, United, American, and Southwest), Carnival, Exxon Mobil, and Marriott International, to name a few.' Some will survive like Exxon and Marriott, but others like the airlines might not.
13% of all companies are zombies btw
Europe also has it pretty bad
'Europe’s zombie firms are multiplying like never before. In Germany, one of the few European economies that has weathered the virus crisis reasonably well, an estimated 550,000 firms — roughly one-sixth of the total — could already be classified as “zombies”, according to research by the credit agency Creditreform. It’s a similar story in Switzerland.
Zombie firms are over-leveraged, high-risk companies with a business model that is not remotely self-sustaining, since they need to constantly raise fresh money from new creditors to pay off existing creditors. According to the Bank for International Settlements’ definition, they are unable to cover debt servicing costs with their EBIT (earnings before interest and taxes) over an extended period.
The number of zombie companies has been rising across Europe and the Anglosphere — due to of two main factors:
- Central banks’ easy money forever policies, which brought interest rates down to such low levels that even firms with a reasonable chance of default have been able to continue issuing debt at serviceable rates. Many large zombie firms have also been bailed out, in some cases more than once. Spanish green energy giant Abengoa has been bailed out three times in five years.
- The tendency of poorly capitalized banks to continually roll over or restructure bad loans. This is particularly prevalent in parts of the Eurozone where banks are especially weak, such as Italy.'
- https://wolfstreet.com/2020/09/15/n...ean-banks-and-think-tanks-saving-the-zombies/
This will keep productivity down and with it wages. Japan suffered for a good decade under the fall out of the bubble. Zombie companies were allowed to stagger on for decades with low rates and semi bail outs.
It is kinda the Greeification of the world's economy. A dragged out slow recovery that never seems to go anywhere.
Should we allow creative destruction to happen and just bail out the workers? That seems a less awful idea imho
https://www.msn.com/en-us/news/othe...what-does-that-mean-for-investors/ar-BB1cBXnu
https://www.marketwatch.com/story/b...unning-rampant-in-the-stock-market-2020-11-24