Week 16 of the Quarantine
SALTA, ARGENTINA — When the government gets involved in a project, you expect corruption and incompetence. With no need to satisfy customers, no concern for the bottom line, and no worries about creditors or bankruptcies, the feds can pay off friends, punish enemies, squander resources, and double down on policies that don’t work.
But in their recent takeover of the whole U.S. economy, even we were surprised.
Zombie Policies
The big picture: The feds, state and federal, aimed to stifle the spread of COVID-19 by locking down the economy. But just last week, the U.S. reported a “record number” of new infections.
The infections are becoming more and more common, say the reports, among young people. And testing has revealed that the virus is, or was, more widespread than previously thought.
But infections aren’t deaths. And they aren’t necessarily bad. If you can’t stop a disease, you’re better off when healthy people get it, and get over it, while the unhealthy people lay low. Then, with antibodies widespread, the virus finds fewer victims who can pass it on.
Reports from Europe tell us that nearly 80% of those who die are over 75 years of age. And in America — with more fat young people — the average age of a COVID corpse is 78.
But while the coronavirus rages in nursing homes, state governments close the beaches. From the Miami Herald:
Sunday’s move by Broward mirrored Miami-Dade’s response to leaps in COVID-19 case numbers and positive test rates over the last week and a half. On Friday, Miami-Dade announced closures of beaches, parks, parties, parades and all manner of usual Independence Day celebration that would bring together more than 50 people.
Dead Money
So now, although the lockdown approach hasn’t beaten the virus, it has flattened the economy. In the U.S., 47 million people applied for unemployment benefits after their jobs were terminated. An estimated 1 million businesses are expected to RIP. Permanently.
Globally, as much as $5 trillion of GDP has given up the ghost.
And it has opened the doors to corruption and incompetence on a scale never before seen in America.
USA Today reports that…
More than 1 million dead people got stimulus checks from the federal government under a new federal law designed to juice the economy during the coronavirus pandemic, a watchdog agency reported Thursday.
We recall that during the mortgage finance bubble of 2005-2007, you could get a mortgage “if you could fog a mirror.”
In the crash of 2020, though, you didn’t even have to draw breath to get $1,200 in free money from the feds. The Internal Revenue Service even acknowledged that it knew it was sending checks to dead people by printing “DECD” on the check itself.
Talk about “stimulus”!? The idea must be that the 1,200 bucks will be so stimulating, it will bring the dead back to life. A miracle, for sure.
Zombie Companies
In addition to being excessively generous, this raised questions. What would the shades buy? Would the cadavers shop online to avoid frightening the Walmart clerks? And didn’t even one of the 74,454 IRS employees have the good sense to wonder what the hell they thought they were doing?
And not only do the feds – with their own good grace and humor (and other peoples’ money) – hand out the loot to those with no pulse… they also give it to dead companies… pumping the oxygen of free money (aka debt) into withered lungs.
Following the crisis of 2008-2009, business debt increased from $10 trillion to nearly $17 trillion, thanks to the Fed’s EZ money policies. This, of course, left businesses with comorbidities (too much debt)… on the eve of what was already shaping up to be the worst downturn since the Great Depression.
A year ago, it was estimated that about 10% of the world’s companies were already zombies, unable to earn enough money to pay the interest on their debt (but, thanks to the Federal Reserve and other global central banks, still able to buy back their own shares and pay generous bonuses to managers).
So… what to do when these companies face bankruptcy in the COVID Crisis? Lend them more money, of course! Corporations are borrowing at a faster pace than ever before. Here’s Bloomberg:
Companies rushing to shore up cash during the Covid-19 pandemic are fueling the busiest June ever in the U.S. junk-bond market. Through Friday, companies have raised about $45.5 billion this month. That puts it on pace to be the busiest month since $46.4 billion was sold in September 2013, the former record since 2006, according to data compiled by Bloomberg.
Zombie Schemes
In addition to the fake money lent out by the Fed, there’s also the fake money lent out by the banks under the Paycheck Protection Program (PPP). This is money that few companies will ever have to repay… which is probably a good thing, since so many couldn’t repay it if they had to.
The scheme was intended to distribute $349 billion. But to whom? Secretary of the Treasury Steve Mnuchin says the public has no right to know where its money goes. So he won’t say. But the folks at WallStreetonParade.com have done some digging:
…our search of filings at the Securities and Exchange Commission reveals that dozens of debt zombie companies that trade on Nasdaq got the loans. Dozens of publicly-traded companies with large credit lines from banks got the loans. Dozens of companies with a lot more than 500 employees got the loans. It’s beginning to look like tens of billions of dollars in PPP loans were simply funneled out the door rapidly with little oversight into who was getting the loans.
For example…
…Christopher & Banks Corporation, which trades on Nasdaq under the symbol CBKC. It’s a retailer of women’s clothes. According to its SEC filing, in early June it applied for and received a $10 million PPP loan. But the same filing also reveals that it has a $50 million revolving credit facility with Wells Fargo and a term loan facility with ALCC for $10 million.
Another publicly-traded company that has not returned its PPP loan is Senseonics Holdings Inc., a maker of an under-the-skin sensor to monitor glucose levels for people with diabetes. It writes in its SEC filing that it entered into two credit facilities providing immediate gross proceeds of $15 million and access to $5 million. But it still took $5.8 million from the PPP.
In other words, the zombie companies are using the fake money to pay their zombie creditors. We remind readers that a “zombie” company – or any company that makes consistent losses – destroys wealth; it doesn’t create it.
Zombie Economy
So, welcome to the Zombie Economy. Giving COVID checks — to the quick and the dead… lending PPP money to zombie companies…
No distinction is made between the living and the dead… between real money and fake money… between the just and the unjust… between Heaven and Hell… between getting rich by flimflam or making an honest dollar…
People get fake money for not working. Companies get fake money for not turning a profit. The feds grow more powerful by making problems worse.
And we all get poorer.
Regards,
Bill
• This article was originally published by Bonner & Partners. You can learn more about Bill and Bill Bonner’s Diary right here.