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interest and inflation

June 24, 2014

MoJo: “At the Moment, Inflation Is Our Friend, Not Our Enemy” By Kevin Drum quotes Atrios of Eschaton blog:

If we do wake up and discover that we’ve had sustained inflation at, say, the unimaginable level of 3% for several months, ushering in the Zombie Apocalypse, our great and glorious central banks will actually step on the brakes. Genuine inflation risk isn’t about a few months of too high inflation (which we should have but that’s another discussion), it’s about “irresponsible” central banks that will keep stepping on the gas even as hyperinflation is destroying the world.

But see Economia: “Interest rise would damage one in five businesses” by Oliver Griffin quotes Giles Frampton, president of R3:

“An interest rate rise will have the biggest impact on ‘zombie businesses’ – those that are already only paying the interest on their debts – and personal finances.”

And see GulfNews: “Circumventing the pitfalls of a zombie economy” by Mark Artus:

In recent years economists have increasingly used the term “Zombie Company” as a way of describing and understanding a specific restraint to economic growth and recovery.

In the case of zombie companies, value creating assets are tied up in activities and enterprises that are not utilising them to their maximum potential. I have been following the zombie company and low productivity debates with interest…

Had the Gulf countries become complacent at their world role, they could easily have developed zombie symptoms, and with it regional prosperity would have fallen. Instead, through rapid investment, the Gulf has gone beyond oil, redefining what it can offer consumers over and above good weather and a tank of gas. Now the region is famed for fashion, luxury and escapism, all accessible by a short flight from Europe. It is a compelling offer and one which gives the potential zombie a potential shot in the arm of the antivirus.

In the global battle to outshine international rivals, it always pays to stay vigilant to avoid zombie characteristics and remain productive.

Read together, the meaning of these three stories is that central banks are damned if they do, damned if they don’t. Their control on inflation would be raising rates, but that would kill still struggling business interests. So instead we all better create more tourist attractions. Forget the interest rate hikes, free money forever can fuel tremendous infrastructure developments focused on getting people interested in visiting. So long as the tourists keep coming, we can keep jacking the prices … until the eschaton?

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