Economist and non-executive Morgan Stanley Asia chair Stephen Roach says the global economy is being hobbled by a new generation of zombies – the economic walking dead.
"American consumers are in the early stages of an unprecedented retrenchment," Roach writes in the Financial Times. In the 13 quarters since the beginning of 2008, inflation-adjusted annualized growth in consumption has averaged just 0.5 percent, he says.
"Never before in the postwar era have U.S. consumers been this weak for this long."
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This zombie syndrome is the same one found in the first of Japan’s two lost decades, when Japanese banks kept extending credit lines for a broad cross-section of insolvent companies – postponing restructuring and inevitable failure.
“The lifeline of policy-driven bank lending allowed bankrupt companies to hang on to excess workers and redundant capacity. But that sapped post-bubble Japan of sorely needed vitality,” notes Roach.
Roach says Washington policymakers are “doing everything they can to forestall rational economic adjustments.”
The Federal Reserve has conducted two rounds of quantitative easing trying to get consumers to start spending the wealth effects of a policy-induced rebound in equities. Congress and the White House have embraced home-foreclosure containment programs and other forms of debt forgiveness.
"The aim is to get zombie consumers to ignore their festering problems and start spending again – irrespective of the wrenching balance sheet damage they suffered in the “great recession,” says Roach.
“The subtext is Washington condones a revival of reckless behavior."
According to RTT News, Bank of Japan says that the Japanese economy is showing some signs of growth, upgrading its assessment for the first time since February.
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