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Joseph Schumpeter

The Federal Reserve's Zombie Economy

Deutsche Bank is out with a new warning that says the Federal Reserve's latest round of an estimated $1.02 trillion in total annual purchases of U.S. Treasuries and mortgage-backed securities is creating lemon socialism, a U.S. economy filled with the financially undead.Deutsche notes that stock markets are based on winners and losers, but there are neither right now. That's because the Fed keeps pumping liquidity into the system, so everyone wins. When everyone wins, no one makes money, a bridge to nowhere Japan has already crossed.The Fed's balance sheet could rise from $2.8 trillion currently to $4 trillion by the end of the year, even $6 trillion by the time the U.S. jobless rate gets down to the new 6.5% level the central bank wants, as the Fed stuffs a lot of paper padding at the foot of the fiscal cliff."Central banks should be more selective with their intervention," says Deutsche's equity research team. "Normally, weak companies fail, leaving the winners to advance and new com...

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