Pushing a Frostbitten Zombie Economy Into the Freezer

A recent article by Michael Pento describes how the Great Depression explains the greater one still ahead. It’s a trap President Obama and Fed Chair Bernanke have gotten the nation into… now — when deleveraging is most needed — they instead choose time and again to increase debt in order to temporarily pump new life into a zombie economy.

Pento explains in Forbes:

“The cause of the Great Depression in the 1930s, and the Great Recession beginning in 2007, was one and the same: an overleveraged economy. Excessive debt levels are the direct result of the central bank providing artificially low interest rates and of superfluous lending on the part of commercial banks.

“The easy money provided by banks eventually brings debt in the economy to an unsustainable level. At that point, the only real and viable solution is for the public and private sectors to undergo a protracted period of deleveraging. The ensuing depression is, in actuality, the healing process at work, which is marked by the selling of assets and the paying down of debt.

“Unfortunately, our politicians today are focused on fighting this natural healing process by promoting the accumulation of more debt. During this latest economic contraction, the Federal Reserve took interest rates to near 0%, and the Obama administration is leveraging up the public sector to record levels in a bid to re-leverage the private sector. The government’s philosophy is tantamount to sticking a frostbitten man in the freezer so he won’t have to suffer the pain associated with the thawing of his extremities.”

The frostbitten zombie economy he imagines could already be entering the third and fourth degrees of severity. If gangrene also rots its way into its undead veins amputation is required… and that’s just before its limbs would already begin to fall off on their own. The deleveraging, as Pento accedes, is a painful process, but it’s the only effective treatment for a walking-dead economy overwhelmed already with debt.

You can read more of the Depression parallels in his Forbes piece on why the Greater Depression still lies ahead.


Rocky Vega,
The Daily Reckoning