Zombie Banking and the Effectiveness of QE2

04/05/11 Delray Beach, Florida – What’s the biggest zombie business in the US private sector economy? Banking! The financial sector makes its money by shuffling money around and lending people rope so they can hang themselves.

Of course, a little “banking” is necessary. Capital must be allocated. But a lot of it is just a pest. A leech. A blood-sucking, flesh eating zombie!

Well, guess what? Profits in the zombie sector are back to where they were before 2007. Which just shows you where that $20 trillion went – into the pockets of the same people whose recklessness and greed caused the meltdown.

Not that we’re complaining about bankers. That’s the way the system is supposed to work. It goes from boom to bust…from euphoria to desolation…from expansion to contraction… The whole system is meant to separate fools from their money; the bankers merely help!

But when the feds step in to try to eliminate the down-stroke of the cycle they make a total mess of the situation. The system goes into a correction…and gets stuck. Progress is halted. Companies that should have died are kept on zombie life-support. Bankers that should be parking cars are kept at their jobs earning million-dollar bonuses. Investors who should have lost all their money, get a chance to lose even more.

That’s what happened in Japan. Along with Addison Wiggin, we predicted that it would happen here too. Of course, we were nearly 10 years too early. But what’s a decade? Sometimes, even marriages last longer.

But wait. Now, the news reports tell us that the feds’ anti-correction program is working.

Probably the most widely read and most highly appraised financial newspaper is The Financial Times. It’s the journal of the financial elite…where policymakers all over the world get their bent news and their misshapen opinions.

Last week, Clive Crook, writing in the FT, told us that “the Fed was right” to launch QE2. He said he was looking for QE3.

And then, just yesterday…in the FT’s “Lex” column. Another headline:

“QE2 won. What next?”

Stock market prices are up. Inflation expectations are up. Unemployment is down to 8.8%. QE2 “clearly had the advertised effects.”

Then, on page 9, there’s Clive Crook again telling us what he thinks we should have next.

“The economy needs a third phase of quantitative easing,” he writes.

Regards,

Bill Bonner
for The Daily Reckoning

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010. 

 

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