The U.S. government is following a course of action that is creating a zombie banking system, while it still has the choice to do otherwise, according to John Hussman. Hussman believes that, while the global economy may appear to be in a rough patch, the world could move forward from this position if it made some tough choice.
With fiscal and monetary palliatives stretched to their limits, it is beginning to appear that the global economy is “up the creek without a paddle” – but this really ignores the fact that the boat has a motor, if we only had the courage to use it. That motor, which would be loud and uncomfortable to start, but would actually help to get the economy moving again, is debt restructuring. In some cases, such as Greek debt, this will require actual losses – a form of debt forgiveness. In other cases, such as U.S. housing, it is possible to restructure the payment stream without the need for subsidies or massive losses (though there will be some adjustment).
By not choosing to use our “motor” and rather continue to support the banking sector, the economy is being drained of the force which could propel it forward.
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