Our whole financial system is based on fiat money.

Money is crucial, since it is 50% of every transaction and the price of money is the interest rate. I wrote about the importance of the interest rate in the educational part of the Ataraxia Financial Newsletter February Issue. If the money supply is centrally managed and is continuously expanded — which it almost always is — this pushes the interest rates below their natural level, making the access of money cheaper than it normally would be, which in turn leads to many consequences.

One of them is, that it turns the economy into a zombieland.

In financial jargon, a zombie refers to an entity that might earn just enough to service its current debt, but only by going further into debt. They don’t generate enough money to actually reduce their debt level. Hence, in order to keep operating, they have to continuously increase their overall debt burden in order to cover expenses and keep operating.

In other words, they don’t have a viable business model that is generates profits and therefore offers something that makes the world better.

Instead, like a zombie, they are graving for new flesh (easy money) that they can suck out of the system to keep going. They are detracting from the available supply and therefore they are not real living entities and can only survive in a world with access to cheap credit.

In short, they are neither really dead, nor really alive.

Corporate Zombieland

Zombie companies have been increasing for several decades (along with cheap credit and money extension), but during the Covid pandemic, with its massive stimulus packages and credit expansions by governments around the planet, they saw an enormous surge.

It is not easy to exactly determine which company is a zombie and which actually has a viable business perspective in the future. That’s why it is hard to tell, how bad the infection rate actually is.

Here is a chart from Axios Visuals, using multiple sources in an attempt to measure the percentage of zombified U.S. corporations:

You can see that the zombies are indeed in a massive surge! 😱

Sovereign Zombieland

Zombies don’t restrict themselves to corporations, also some sovereign nation states are entering zombieland — and they are multiplying rapidly.

With rising interest rates, it becomes more and more obvious to many observers, that the debt levels are not sustainable. Most people familiar with the Austrian school of economics have been pointing this out for a long time.

If a government is not able to manage a positive budget in times of economic growth and near-zero interest rates, but instead has to take on more and more debt, it is likely already in zombieland.

When the tide goes out and…

• Interest rates rise.
  • The issuance of new debt gets more expensive.
  • Rolling over the already existing (massive) debt burden becomes more expensive.
• The economy is heading for a recession.
  • The government collects less taxes.
  • There is more pressure to spend money to support people who lose their jobs.
  • More pressure to inject stimulus packages for the economy and the demand for saving “system-relevant”, or “too big to fail” businesses.
• Governments are in an effort to:
  • Increase their war machinery in order to fight self-created enemies.
  • Engage in de-globalization, protectionism, bans and sanctions.
  • Divert funding away from cheap and reliable energy resources into expensive and unreliable energy-adventures.

…then we are on the way to witnessing the absolute zombification of nation states.

Conclusion

Central banks continuously issuing cheap money has not only kept many unproductive companies alive, but has also boosted the creation of new zombie entities.

As the debt levels of sovereigns keep dramatically rising, while interest rates are moving up, we are also witnessing further zombification of the nation states themselves.

I hope you learned something.

Watch out and stay away from the zombies!