That said, that Fed study was written 1 year ago when the cost of lending was about 1.25% lower. I give the Fed credit for at least giving the topic credence and backing it up with a thorough set of statistics. How likely is the Fed to find its own policies bad? Did The Zombies Multiply Today? After all, the presence of zombie firms is a direct consequence of ZIRP (Zero Interest Rate Policies) and Quantitative Easing measures (QE1, QE2, etc.). In a humorous aside, some Fed critics at the time likened publication of this study on the Fed site to appointing the fox to guard the chickens. The COVID-19 pandemic is an economic shock of unprecedented magnitude, and while its potential scarring effects on the economy are difficult to predict, it may severely damage some sectors of the economy, turning many firms into zombies." However, the study also concluded: "It is too early to dismiss concerns that the current economic conditions may be breeding new zombie firms. These companies "did not benefit disproportionally from the improvement in credit market conditions resulting from the unprecedented fiscal and monetary support following the outbreak of the COVID-19 pandemic." Their conclusion at the time was that the prevalence of zombie firms, around 9% of the public companies and 5% of private firms, was "not an important feature of the U.S.
The study attempted to establish "a panoramic view of the prevalence of zombie firms in the U.S. Zombie Firms: How Many and How Consequential? The Federal Reserve itself took the subject seriously enough to publish a study on this a year ago, acknowledging the problem and analyzing its impact. But it's hard to find quantifiable facts. Quite a few articles have mentioned the proliferation of zombie companies, whose very presence put a heavy drag on the dynamism of the US economy. As defined by the Fed, zombie firms are "nonviable firms with low growth prospects that survive on cheap credit". At least where they relate to corporate entities. You see a lot of this has to do with zombies. The results are what you see in the chart above.
The cause? The Fed has finally started zealously tightening rates, reversing 14 years of easing. The blood-red colors in this stock map show the depth and expanse of the carnage, with only energy and health care sectors being bright spots of profitability. Investors this year have gotten absolutely hammered in a severe market rout that has spared few sectors. Gremlin/E+ via Getty Images The Everything Storm
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