Burying the Zombies

Over at the Daily Reckoning, Bill Bonner writes, in his always entertaining way:

Back in the ’90s, when Americans still believed in capitalism, they sent a steady stream of advisors and kibitzers to Japan. The world’s second largest economy was in a stall and seemed in no hurry to get out of it. Its largest banks were “zombies,” said the Americans; they were propped up by the Japanese government in order to avoid losses and embarrassment. If the Japanese wanted to get things moving again they should let those banks fail...let the free market do its work...let the chips fall where they may. Then, capitalists, entrepreneurs and scrappy businessmen could pick them up and build with them.

The Japanese didn’t take the advice. To this day, 19 years after the beginning of Japan’s long, soft, on-again, off-again depression, the economy is still in a slump...and expecting negative growth again this year. All together, Japanese investors are said to have lost a sum equal to 300% of the nation’s annual GDP...the equivalent to a loss of about $45 trillion in the United States.

Years ago, we predicted – in these daily reckonings – that when the crisis came in the United States, Americans wouldn’t take their own advice. Alas, we were right. Instead, they are keeping the zombies alive, just like the Japanese did. And the zombies are sucking the blood out of the economy.

And poor Barack. Our guess is that Paul Volker has spelled the nuts and bolts of the situation out for him. But Obama, surrounded by a fluff of advisors with their dog-eared copies of Keynes’ General Theory of Employment, Interest and Money , doesn’t know who to believe...or who to trust. So, he goes with the flow. It would take a strong man, with strong convictions about economics to resist a gaggle of Ph.D. economists and experts telling him that he risks ‘catastrophe’ if he doesn’t act quickly. Poor Barack may be a decent fellow...but he is a decent fellow in a bad trade. He doesn’t know it, but the flow leads nowhere.