08 June 2020

One Word Makes a Big Difference

The head of Fidelity International, Anne Richards, is predicting a global insolvency crisis.

The important thing here is that she says that there will be a SOLVENCY crisis, and not a LIQUIDITY crisis.

This is important.

If you are illiquid, you lack the necessary cash to make payments right now, but if you are insolvent, you owe more than your assets.

If you are insolvent, you are broke, bankrupt, or busted.

Absent a bailout or buyout (usually at a discount) an insolvent operation is done.

It is much worse than a liquidity crisis, and it's what happens when corporations burn through their assets buying up their own stock instead of investing in the business.

If she is right, and I'm inclined to believe that she is, his is going to get ugly, with zombie companies holding back the econom for years.


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