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Zombie Quantitative Easing

January 25, 2013

From The Guardian: “Dr Doom says quantitative easing will create zombie banks, firms and borrowers” by Heather Stewart

Nouriel Roubini, the economist dubbed “Dr Doom” for predicting the credit crunch, has sounded a stark warning about the long-term effects of relying on quantitative easing to keep crisis-hit western economies afloat.

At a lively debate in Davos, Roubini, who runs a New York-based consultancy, said central bankers risked saddling the economy with debt-burdened banks, businesses and consumers that should have been allowed to go bust.

“Over time, you get zombie banking, zombie corporates, zombie households, which is damaging in the long term,” he said. The phrase “zombie banks” was coined in Japan, to describe insolvent lenders propped up by cheap cash.

zombie doom noriel roubini

And see MoneyNews: “Roubini: QE ‘Zombies’ Are Coming to a Town Near You” by John Morgan.

It’s funny how QE sounds like Queen Elizabeth. Those silly “QE addicts” give them the QE2. But seriously, what the heck is “quantitative easing”. Is it like “Dynamic Scoring” – by which I mean is it another fairy tale magic buzz word? Recall “Senator Schumer thinks Dynamic Scoring is a Faerie Tale“.

Well so no, these two economic concepts aren’t particularly related, except that they both allow for Federal manipulation:

Quantitative easing (QE) is an unconventional monetary policy used by central banks to stimulate the national economy .. Quantitative easing can be used to help ensure inflation does not fall below target

But there are risks: Impact on savings, Inflation, Housing market over-supply, Capital Flight.

Note:

Quantitative easing has been nicknamed “printing money” by some members of the media, central bankers, and financial analysts. However, central banks state that the use of the newly created money is different in QE. With QE, the newly created money is used for buying government bonds or other financial assets, whereas the term printing money usually implies that the newly minted money is used to directly finance government deficits or pay off government debt

So the point being that buying toxic debt is different than the giant trillion dollar coin – but as in the earlier century, Queen Elizabeth policy leads to a lost generation of British zombies – hmm that metaphor doesn’t really work but recall again Downton Abbey World War One Zombies and HBO Girls Zombie Generation.

And recall Stephen Roach, professor at Yale School of Management, referring to zombie quantitative easing in with health metaphors, noting the

“cure has become part of the disease”

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From → economics, money

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