But you're probably wondering: how does that work again? Simple, think of it this way... QE and ZIRP are essentially new forms of wealth. Whoever gets this wealth gets richer. Everybody else gets, relatively, poorer.
Did you get this new money, dear reader? You may have, without realizing it. It feeds corporate profits and equity prices. The new money is not designed to create wealth, it just transfers more resources - credit at the lowest interest rates in 3 generations - to rich people. Small businesses create new jobs and new wealth. But small business can't borrow at today's low rates. They're lucky if they can borrow at all. Instead, almost all the new credit goes to banks, big businesses and the government.
In the normal course of investing you win some and you lose some. That's what keeps the rich from always getting richer. Wealth goes both ways. But along comes the Bernanke Fed with zero interest lending ...and even bad businesses can refinance their mistakes. If they're big enough.
So you end up with an economy full of giant lumbering zombies...protected by the government and nourished by the Fed...rather than agile, lean start-ups.
Here's the Wall Street Journal on the subject:
And here's the WSJ
"Companies add jobs more slowly, even in good times. Investors put less money into new ventures. And, more broadly, Americans start fewer businesses and are less inclined to change jobs or move for new opportunities."
Also in the Wall Street Journal was a guest editorial from a Dr. Josh Bloom. Mr. Bloom was commenting on creeping zombieism in the healthcare business. He's in favor of it.
But here's the background story (excerpted from our still-unwritten new book).
Antibiotics have been a great boon to mankind. But Neitszche's dictum, that what doesn't kill you makes you stronger, applies to the little bugs as it does to mankind. Antibiotics killed all except the most robust bacteria, which were able to reproduce and evolve. Then, new antibiotics were introduced to kill the new, more resistant germs. This bacterial arms race has gone on for the last 40 years. And the bugs seem to be winning. Drug resistant bacteria killed 90,000 Americans last year...and the problem is getting worse.
What can be done? More new drugs to fight the bugs that are resistant to the old drugs? New money to fix the problems caused by the old money?
Pharmaceutical companies make money on new products, not on withdrawing old ones. Each new generation of antibiotic means new, patentable and very profitable products to market. Everyone gets what he wants. Patients, doctors, pharmacists and the corporate drug makers.
And as health care grows more important, more costly, and more ubiquitous, so does the downdraft grow more powerful. Combine the development of the drug resistant superbugs with greater numbers of people visiting hospitals. Every year there are more and more patients coming in for un-needed testing and ineffective treatments. Every year, there are more elective and often unnecessary surgeries. Here the unnecessary patients meet the unwanted staph infections. A nice formula for spreading the unstoppable deadly bugs far and wide!
The solution to this problem is the same one facing Napoleon at Berezina river. "Turn back," said the voice of reason. "Go ahead," said the mischievous gods.
David Goldhill writes in the Atlantic about one very reasonable effort to stop the plague:
"Hospitals that implemented Pronovost's checklist enjoyed immediate success. Where his checklist was put in place and followed, hospital originated infections dropped by two-thirds within three months of adopting it.
Dr. Bloom, however, seems more pleased than alarmed. Why? In the article we learn that, for the first time ever, the US government is giving $200 million to GlaxoSmithKline to help the company "search for new antibiotics." Dr. Bloom, it says at the bottom of the article, is on the staff of a non-profit group, "American Council on Science and Health." The group will not disclose its source of funding. But let's take a wild guess. GlaxoSmithKline?
Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.