Tag Archives: zombification

The Zombification of the Economy, by Schiffgold

Posted on February 16, 2022 | Leave a comment

Too much debt enervates and eventually destroys an economy. From Schiffgold at schiffgold.com:

Another hotter than expected CPI print in January put even more pressure on the Federal Reserve to do something about inflation. Suddenly, there is talk of a 50 basis point interest rate hike at the next FOMC meeting.

But “doing something” is is easier said than done, particularly in this zombie economy.

The Fed has gotten itself into a tight spot. Raising rates will expose another major economic problem that lurks just under the surface.

The world is buried in debt.

Economist Daniel Fernández Méndez described the 21st century as the “decade of debt.”

And if things continue the way they are, it could well be called the century of the great debt default.”

We’ve talked a lot about the massive levels of debt piled up by the federal government during the pandemic. But that’s just the tip of the iceberg. In 2021, US consumer debt grew at the fastest pace in five years. And then we have corporate debt and the proliferation of “zombie companies.”

Could this lead to a “Minsky Moment” — the point at which it becomes impossible for debtors to pay off their debts?

Daniel Fernández Méndez thinks it could.

The following was originally published by the Mises Wire. The opinions expressed are the authors and don’t necessarily reflect those of Peter Schiff or SchiffGold. 

More and more economists and finance specialists are warning of the potential arrival of a new “Minsky moment.” The last time this term was used with such conviction was in 2008 at the onset of the Great Recession. It seems that 2021–22 could have some parallels with the world’s last severe recession.

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Posted in Banking, Business, Collapse, Debt, Economy, Financial markets, Governments, Investing

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When Dead Companies Don’t Die – Welcome To The Fat, Slow World, by Ruchir Sharma

Posted on June 18, 2019 | Leave a comment

There’s a huge price to pay for not allowing the market to kill off companies that can’t compete. From Ruchir Sharma at nytimes.com via zerohedge.com:

he policies created to pull the world out of recession are still in place, but now they are strangling the global economy…

The United States’ recovery from the Great Recession recently turned 10 years old, matching the longest American expansion since records were first kept in the 1850s. The global recovery will also turn 10, in January, if it lasts that long — and that, too, would be a record.

But there have been few celebrations, in part because trade tensions have further slowed the pace of recovery. Since the end of the recession, the economy has grown at about 2 percent a year in the United States and 3 percent worldwide – both nearly a point below the average for postwar recoveries.

What explains the longest, weakest recovery on record? I blame the unintended consequences of huge government rescue programs, which have continued since the recession ended.

Before 2008, more open trade borders and better internet communications promoted strong growth by leveling the playing field, inspiring the Times columnist Thomas Friedman to declare that “the world is flat.”

Once the crisis hit, however, governments erected barriers to protect domestic companies. Central banks aggressively printed money to restore high growth. Instead, growth came back in a sluggish new form, as easy money propped up inefficient companies and gave big companies favorable access to cheap credit, encouraging them to grow even bigger.

If the world was flat and fast before 2008, today it’s fat and slow.

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Posted in Business, Capitalism, Cronyism, Debt, Economy, Governments

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Japan on a Larger Scale, by James Rickard

Posted on April 19, 2019 | Leave a comment

Go deep enough into debt and you can’t climb out, as Japan has found out and as the US and Europe are finding out. From James Rickard at dailyreckoning.com:

In my 2014 book, The Death of Money, I wrote, “The United States is Japan on a larger scale.” That was five years ago.

Last week, prominent economist Mohamed A. El-Erian, formerly CEO of PIMCO and now with Allianz, wrote, “With the return of Europe’s economic doldrums and signs of a coming growth slowdown in the United States, advanced economies could be at risk of falling into the same kind of long-term rut that has captured Japan.”

Better late than never! Welcome to the club, Mohamed.

Japan started its “lost decade” in the 1990s. Now their lost decade has dragged into three lost decades. The U.S. began its first lost decade in 2009 and is now entering its second lost decade with no end in sight.

What I referred to in 2014 and what El-Erian refers to today is that central bank policy in both countries has been completely ineffective at restoring long-term trend growth or solving the steady accumulation of unsustainable debt.

In Japan this problem began in the 1990s, and in the U.S. the problem began in 2009, but it’s the same problem with no clear solution.

The irony is that in the early 2000s, former Fed Chair Ben Bernanke routinely criticized the Japanese for their inability to escape from recession, deflation and slow growth.

When the U.S. recession began during the global financial crisis of 2008, Bernanke promised that he would not make the same mistakes the Japanese made in the 1990s. Instead, he made every mistake the Japanese made, and the U.S. is stuck in the same place and will remain there until the Fed wakes up to its problems.

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Posted in Banking, Business, Currencies, Debt, Economics, Economy, Government

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