US Fed is financing zombies - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 18 December 2012
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Baltimore, Maryland

Here's the front page story from the Dec. 12 edition of the International Herald Tribune. It's about Kosovo, which is selling off its telecom system:

    One bid is from a fund founded by former US Secretary of State Madeleine K. Albright. Lobbying for another was James W. Pardew, the US special envoy to the Balkans in Bill Clinton's presidency.
Zombies never retire. In "public service" or in the "private sector" they are always working for themselves...trying to secure a special privilege...a break...a freebie...an edge.

And now they've got the world's most powerful central bank - not to mention the others - in their corner. The Fed will print up $85 billion every month. What will happen to all this money? Will it go to people trying to make ends meet? Working stiffs trying to keep up with the mortgage? Taxi drivers and cable guys?

Nah...it will go to the zombies. The well-connected zombies, like Pardew and Albright.

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How's that?

Well, okay...we'll spell it out. You want to start a business? You need $100,000...$500,000? You'll be lucky if you can find a bank to lend you a dime.

Why? Because it costs a lot of money (relatively speaking) to administer a loan like that. And there's a good chance you won't pay it back.

The big lenders prefer better deals...bigger deals...and deals with plenty of upside. Like a telecom deal, for example. The Fed uses its crisp, new $85 billion to buy assets - US Treasury debt and mortgage-backed securities. Who owns this stuff now? The big banks, mostly. And Wall Street.

In effect, the Fed gives the financial fat-cats $85 billion, each month, that no one ever had before. So, there's a lot of cash and credit for investing and speculation...and for helping the insider zombies to get their deals done.

Take away this source of nearly free financing and many of these fat deals lose their juice. Then, instead of analysts forecasting a 14,000 Dow or even a 16,000 Dow for next year, they'd be covering their shorts and expecting the Dow to drop under 10,000.

Then, the rich wouldn't be so fat and sassy. The zombies wouldn't be so well-fed either. (We can prove it...stay tuned until tomorrow!)

In the meantime, is there a central banker in the entire world who isn't a zombie-enabling, semi-delusional incompetent?

The answer, according to the Wall Street Journal, is YES!

What's the secret? Well, it helps if you grew up in a Soviet-style country. Then, you'd have a clearer idea of what central planning can do for an economy. Which is why Mr. Leszek Balcerowicz is way ahead of the Bernankes, Kings, Draghis and Fischers of this world. Mr. Balcerowicz was born in Poland 65 years ago. He got a doctorate in economics, but not from MIT. And he got to see - even as a member of the Communist Party - how central planning really works.

Then, when Poland defected from communism, Balcerowicz led the transition team with a cold turkey plan that forced the country down the capitalist road quickly.

When the financial crisis shook the world in 2008, Balcerowicz took charge again. In the 1990s, he had pushed through a law imposing a debt ceiling. So when the crisis hit, Poland was not weakened by debt, unlike so many other European countries. Partly as a result, Poland dodged recession and has been Europe's strongest economy ever since.

What does Mr. Balcerowicz think of his peers at the Bank of Ben Bernanke? All we know is what he told the WSJ.

They're in "uncharted waters," he remarks. And "while the benefits of non-conventional [monetary] policies are short lived, the costs grow with time. The longer you practice these sorts of policies, the more difficult it is to exit..."

Of course neither the Fed nor most economists are worried. They look at low interest rates. The US has no financing problem, they explain. So, why sweat it?

Balcerowicz knows why. "They can maintain large deficits at low current rates... [they] can just refinance their loans...get a lot of cheap financing to finance bad policies....dangerous to the world and perhaps dangerous to the US."

He didn't mention zombies. So we will plug the hole. What the Fed is financing is zombies. Zombie banks. Zombie industries. Zombie companies. Zombie investments. A zombie government with zombie employees...and millions of zombies... Little ones. Big ones. Short ones. Tall ones. Smart ones. Dumb ones. And all determined to live at someone else's expense.

The more meat the Fed feeds them, the more zombies we have...and the harder it will be to return to an honest, productive economy.

How will it end?

Badly. Ask Balcerowicz.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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2 Responses to "US Fed is financing zombies"

Pramod Phadke

Dec 18, 2012

At this rate, I suppose you are predicting a collapse of Fed. How much time do you give for this to happen?

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SIVARAMAKRISHNAN

Dec 18, 2012

Dear Mr Bill, I do not know if i am smart one or dumb one but i am short in height standing just 5'4" and slightly overweight at 70kgs. Will the Fed finance me as a Zombie for my investments in stocks? I am a citizen of India and not US and I wish to know if i am eligible for it.

I request you to recommend my name.

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