Zombie Companies, Low Investment and Low Interest Rates

Andrew Smithers

Published: December 2022

The number of zombies has risen this century and growth has slowed. Both have a common cause in the bonus culture but, unlike Japan after 1990, there is no direct causal link. Ultra-low interest rates have not slowed growth. While monetary policy is largely responsible for the surge in inflation and the current high risk of another financial crisis, higher interest rates, not offset by other measures to stimulate the economy, would have slowed rather than boosted growth. The popularity of these misconceptions arises from (i) otherwise fully justified concerns about monetary policy, (ii) misunderstanding the concept of creative destruction, and (iii) confusing companies with the businesses they own. Overleveraged companies are refinanced or liquidated; the distinction depends on the difference between their scrap and potential stock market value, the relevance of which is denied by the consensus economic model. Analysing the issue thus requires the use of other economic models.

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