New York (CNN Business)1. Easy money: The past decade of ultra-low interest rates has spawned the rise of “zombie” companies.
These debt-laden firms don’t make enough to even cover their interest payments. That’s never a good sign.
The number of zombie companies in advanced economies last year stood at 536, or 13% of the total, according to Bank of America Merrill Lynch.
That’s a surprising figure given that the global economy was strong in 2018. In fact, the number of zombie companies isn’t far from the peak of 626 seen during the depths of the Great Recession, BofA said.
“Last time it was easy to be a zombie because everyone’s profits were collapsing,” Michael Hartnett, BofA’s chief investment strategist, said in an interview.
So what’s the excuse this time? Economists blame the era of extremely low interest rates.
Easy money allows companies to borrow cheaply. And low rates encourage investors to gamble on riskier companies.
The Federal Reserve held interest rates near-zero for almost a decade and pumped its balance sheet up to $4.5 trillion.
“Central banks have pushed interest rates to zero. Therefore, nobody can go bankrupt,” Harnett said.