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Reproduced from BofA Global Research; Note: Banks included are Federal Reserve, European Central Bank, Bank of Japan, Bank of England, Bank of Canada and Reserve Bank of Australia; Chart: Axios Visuals

Fears are mounting that a massive growth in debt and the current policy environment — described as "monetary policymaking on steroids," by Michael Arone, chief investment strategist for State Street Global Advisors, earlier this year — could be producing a new global wave of "zombie firms," a new G30 report by top economists and central bankers warns.

What it means: "The term 'zombie firms' was coined to refer to firms propped up by Japanese banks during Japan’s so-called 'Lost Decade,' following the collapse in 2001 of the Japanese asset price bubble," according to the report.

  • "Multiple studies suggest these firms contributed to Japan’s economic stagnation by distorting market competition and depressing profits and investments in healthy firms."

Why it matters: "[O]verburdening of the corporate sector with debt in the response to Covid-19 could create a new wave of zombie firms, with harmful consequences for the prospects of economic recovery."

  • "As interest rates stay low and governments continue to support struggling firms, the risk of zombie firms increases."

Between the lines: We may already be seeing this happen. The G30 report comes on the heels of the BIS' latest quarterly review, which noted that a "divergence in the assessments of corporate vulnerabilities may be emerging."

  • The review pointed out that while equity prices were reaching record highs and credit spreads had compressed, banks have significantly tightened their standards and cut back lending.
  • Investors' search for yield and central banks' gargantuan easing programs "appeared to underpin these contrasting developments."

The bottom line: The G30 report quoted Piyush Gupta, CEO of Singapore-based DBS bank, who expects the issue of zombie firms to be a particular challenge among small and midsized businesses. He predicts a wave of defaults that will add pressure to the financial sector.

  • Policymakers will soon need to ask themselves a serious question, he says: “Do you keep...using public finances to support companies or do you let creative destruction happen?"

Go deeper

Blue-chip clients dump Trumpworld lobbying shops

Former President Trump. Photo: Mandel Ngan/AFP via Getty Images

Some blue-chip corporate clients have cut the cord with lobbying firms that monetized their close relationships with Donald Trump and his administration, new disclosure filings show.

Why it matters: Every change in administration shuffles the groups that can influence decision-makers — and who have the ability to market that access to high-paying clients. A raft of lobbying agreement terminations since Trump lost reelection in November indicates segments of corporate America are tweaking their advocacy strategies accordingly.

New York AG finds Cuomo sexually harassed women, violated state and federal law

Photo: Spencer Platt/Getty Images

An independent investigation found that New York Gov. Andrew Cuomo sexually harassed multiple women, including employees in his office, in violation of state and federal law, New York Attorney General Letitia James announced Tuesday.

Why it matters: Cuomo, who has denied wrongdoing and urged critics to wait for the results of the independent inquiry, will now face renewed pressure to resign. He must also determine whether he will continue his 2022 re-election campaign.

2 hours ago - Health

New York City to require vaccination proof for indoor activities

New York City will require proof of vaccination to participate in indoor activities, including visiting gyms and restaurants, Mayor Bill de Blasio announced Tuesday.

Why it matters: The mandate is the first of its kind for a major U.S. city, according to de Blasio. France and Italy announced similar requirements last month.