Central bank easy money policies (zero bound interest rates along with bond buying) spawned the rise of zombie firms. Here’s why that’s a problem…
One look at global financial plumbing (which we do in Part 2 of this series) verifies that, short-term debt provided by private corporations is providing the propellent for emerging market and developing country economies. This debt is based on collateral that is vulnerable to runs.
Because of the 2008 stock market crash, central bank easy money policies (zero bound interest rates along with bond buying) spawned the rise of zombie firms. The problem lies with the banks. If taking the losses, as these companies default on their debts, would push the bank into insolvency, it becomes beneficial for the bank to continuously roll these loans over, funding deficits along the way.
As more fiat collateral is created by these zombies, the less real value it has, regardless of the current trading value in the markets.
Physical gold is the soundest collateral with the longest continuous value in history. Ask yourself, when the financial house of card falls, what collateral do I want to be holding?
Real or Imagined, the choice is yours.