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Monday, March 18, 2013

ZIRP and Zombies - The Undead Bankers and Industrialists Walk Among Us

***Please feel free to leave comments or ask questions at the bottom of the article. We will reply or will write a special article to answer your questions.***

The un-dead bankers walk among us, cloaked by their ZIRPian shields.....
National level politicians and Central Bankers are desperate to keep up the appearance of an economic recovery.  As a result of these policies, iinterest rates have been forced to record lows for extended periods of time. This has resulted in ZIRP – zero interest rate policies.  Almost all of the major advanced economy countries have Central Banks with interest rates which are effectively at or near zero percent.  If inflation is taken into account, then the interest rates are actually negative in real terms.
Photo by Tod Seelie 
Yet at the same time, these same governments want failed banks, insurance companies and large aging industries to be bailed out to "save the economy" or to "save jobs."
We now have a series of zombie banks and corporations which are being kept alive with the massive infusion of taxpayer dollars and low interest rates. These banks and industries should have been allowed to die a natural death years ago and new viable entities should have emerged from their ashes.  But instead they continue to wander the planet in a state in which they are neither alive nor dead.  They are the zombies of the advanced economy democracies, cloaked by ZIRPian shields. They are eating up capital that should have been allocated to new industries or used for capital acquisition/infrastructure projects. The money is being wasted because short term politicians fear to let nature take its course or they are beholden to their paymasters in the financial industry.
And what of ZIRP? Central Banks, with governmental unofficial approval, are keeping interests rates artificially low. Most governments and many citizens are so far in debt now that if interest rates were to return to a more normal 3 or 4 percent (overnight lending rate), the result would be wide scale defaults.  Debt has become so pervasive that it has overwhelmed the system. Low interest are now being used to extract wealth from those who save money, have a private pension (401K, RRSP etc) or who have real assets.  Low interest rates should be seen for what they are - a means of transferring excess capital from those who have it (savers) to those who are over their heads in debt (governments, large banks).  This is the indirect method of stealing money from those who work and save. 
Literally trillions (with a T) of capital dollars have been mis-allocated.  The damage is both immense and long term.
The un-dead bankers and industrialists look just like us. They walk among us unseen.  But when their ZIRPian shields fall, their decaying flesh will be revealed to us - along with the cost of what it took to keep them alive for so long (hello to the nice folks at CITI Bank).  Governments and Central Bankers can attempt to blow life into their already rotting corpses, but this process will ultimately fail.
This is economics for the rest of us - those of us who pay for the ZIRP cloaked zombies!

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