Is more quantitative easing (QE) inevitable to save the “too big to fail corporations” that drive the US economy? These so called “zombie” companies that don’t have enough money to survive are haunting the stock market. Will the US repeat the banking bailout of 2008 to keep them alive and in the process inflate the economy and devalue the US Dollar? Could using Bitcoin which holds its value and impossible to inflate be a better solution to QE?
Zombie companies draining the economy?
A zombie company is a business that continues to operate normally but it has substantial debts that leave it unable to expand or grow. By only ever paying the interest on its debts rather than any of the capital sum, it’s difficult for this situation to change. The company simply stagnates as it is unable to make a profit to start paying off its debts, but it is not in such trouble that it faces closure. It also does not have the money to hire new employees to kick-start growth, and certainly cannot afford to make any redundancies.
Who are these companies?
15% of the top 1500 companies in the united states which represent 80% of the country’s value. This figure could easily increase to 25% in 2019.
Why QE4 and QE5 is inevitable
Mike Malony breaks down exactly what’s going on in his latest video
As more and more companies sink in debt are we likely to see an increase of zombie companies increasing to 25% of the top 1500 companies? If these businesses are driving the country then to keep the USA artificially alive surely we will see repeats of historic bailouts?
- 2008 Banking Crisis – £700 Billion
- The Savings and Loan Bailout of 1989 – $293 Billion
- Bear Steams 1923 – $29 Million
- Fannie Mae and Freddie Mac 2008 – $200 Billion
- The American International (AIG) Bailout 2008 – $85 Billion
Where does all this money come from?
Simple answer is “nowhere”. The government votes to authorise the federal reserve (an independent private bank) to print more money into existence. Once loaned to the government it can then use it to bailout the failing companies.
This new injection of so called money into the economy is created as debt which the government and its taxpayers have to pay off. Historically because the debt levels are so high that repayment never happens but it has a negative effect on the economy and its citizens.
QE causes a devaluation of the US dollar
Whenever there is an abundance of anything its value decreases. Much like when the oil producing nations increase the supply of petroleum its price goes down. The same is true when more currency is artificially injected into the economy, its value also goes down and the country goes into inflation.
You and I are worse off because of QE
A knock on effect of having a surplus amount of currency inflating the economy is that prices rise. However typically our salaries do not match the price rises and we would also need to increase our savings, investments, pensions and mortgage payments to match; which of course never happens.
“A dollar yesterday was worth more than it is today and even less tomorrow”
Where does the QE Money go?
The money from quantitative easing goes to the failing companies. If these companies were smart they would use that money to invest and recruit. However there is a reason they failed in the first place and historically bailed out companies do not improve.
Not just a US problem
Quantitative easing has been a global phenomenon whereby governments authorise their private central banks to issue more currency. Should Trump decide to go down the QE route I expect other nations to follow like sheep.
Use Bitcoin instead?
Bitcoin and other Cryptocurrencies are anti inflationary and it is impossible to artificially create mass sums of them. If we use Bitcoin as a currency then quantitative easing is impossible. In fact the total number of Bitcoin that can ever be created is 21 million, no more!
Bitcoin’s supply is created slowly and becomes more difficult over time using a process called “Mining” This means that Bitcoin maintains its value over time and in my opinion is a better system to use than dollars, pounds and euros which as a consequence of inflation lose their value over the same period.
“A Bitcoin yesterday holds the same value today as it does tomorrow”
If you would like to find out more about how Bitcoin and other Cryptocurrencies work read my guide “Demystifying Cryptocurrencies”
Will Trump kick off QE4?
Historically US presidents have followed orders to create more debt and enslave its citizens with inflation. However as Trump is a businessman and supporter of the free market, will he instead allow things to naturally play out? The media would love to have another thing to blame him for!
“Trump crashes economy by not supporting top 15% of top US companies”
Just because we have been reckless in the past should we continue this pattern of saving failing companies? Surely a business that cannot function should be allowed to fail so that the ones succeeding can step in? Isn’t this what a free market is all about?
How I can help you?
My background is in technology and training and for over 10 years I have provided IT Support to home and small business users through my IT company ithound.co.uk. In recent years I have added Cryptocurrencies to my product offering with cryptohound.me.
Whether you are a business wanting to accept cryptocurrencies or an individual interested in investing in them, I will help you get started and provide training and support to give you confidence using them.
I regularly write blogs both on my website and the Steemit platform so be sure to connect with me there. If you would like to support my work please check out my affiliate links below which help finance the articles and videos I make:
- Mine Bitcoin and earn passive income with the Elevate Group
- Earn $10 worth of free Bitcoin on your first trade with Coinbase
- Buy Bitcoin and Cryptocurrencies using the Binance Exchange
- Protect your Cryptocurrencies with a Ledger Hardware wallet
Carl Hughes, The Crypto Hound
Signal Messenger: +447919 562 418
Telegram: @ flowingman