Bankruptcies Rise Despite Trillions in New Liquidity

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Misguided lockdowns have destroyed the global economy and the impact is likely to last for years.

The fallacy of the “lives or the economy” argument is evident now that we see that countries like Taiwan, South Korea, Austria, Sweden, and Holland have been able to preserve the business fabric and the economy while doing a much better job managing the pandemic than countries with severe lockdowns.

One of the most alarming facts about this crisis is the pace at which bankruptcies are rising. Despite an $11 trillion liquidity injection and government aid in 2020, stocks and bonds at all-time highs, and sovereign as well as corporate yields at all-time lows, companies are going bust at the fastest pace since the Great Depression. Why? Because a solvency crisis cannot be disguised by liquidity.

Trillions in liquidity are giving investors and governments a false sense of security, because yields are low and valuations are high, but it is a mirage driven by central bank purchases that cannot disguise how quickly companies are entering into long-term solvency issues. This is important because soaring bankruptcies and the rise in zombie companies means less employment, less investment, and lower growth in the future.

Mises.org

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